It took nearly three years, but SunCal has finally gotten back control of three California properties that became mired in the collapse of Lehman Brothers in 2008.
SunCal won back the properties in Riverside and Kern counties with a $71 million bankruptcy auction bid. The purchase provided funds to pay off creditor claims, leaving the 4,300 acres of land free for SunCal to get back to the business of developing the land. The developments were sent into limbo with the bankruptcy because Lehman was SunCal’s financial partner in the developments.
The developments include: McAllister Ranch, a 2,070-acre golf-course community in Bakersfield that had entitlements for as many as 6,000 homes; McSweeny Farms, a 673-acre master planned community in Hemet that is approved for 1,600 homes; and SummerWind Ranch, a 1,583-acre parcel in Calimesa with plans for 3,600 homes.
“We’re pleased to close the transaction for these three properties, and it would be great to see the same progress with the other pending Lehman-involved cases,” Frank Faye, SunCal's chief operating officer, said while announcing the deal. “Although these three developments have been tied up in court for three years, the market’s interest in them has consistently remained strong. Their true value has finally been determined and realized through an open bidding process.”
But the three properties are only a piece of the many properties that SunCal had partnered with Lehman to develop. There are two other bankruptcy cases involving more than 20 other properties SunCal and Lehman were developing together. Because those projects were structured differently, with Lehman as the majority leader, they are being managed by Alvarez & Marsal, a restructuring firm that SunCal executives have accused of dragging out the process of liquidating the assets in order to collect more fees. So far, the company has billed more than $1 billion in legal and service fees related to the Lehman bankruptcy, SunCal said.
“Because Lehman was not the majority lender [in the three developments SunCal just purchased] as they are in other cases, Alvarez & Marsal was not able to block a resolution and prevent this 363 sale from taking place,” David Soyka, senior vice president of public affairs for SunCal, said in the announcement. “The public auction allowed SunCal to step up to the plate and become the high bidder. This is how the bankruptcy system is supposed to work: a restructuring that allows the assets to be liquidated and move the process forward. Unfortunately, Alvarez & Marsal has blocked every attempt at similar efforts in other pending Lehman cases.”
SunCal and Lehman, once partners, have faced off since the Lehman bankruptcy, lobbing allegations at each other in the court documents of various bankruptcies.
SunCal accuses Lehman of reneging on promises to fund their joint developments, which SunCal put into Chapter 11 as a result. Lehman accuses SunCal of defaulting on the loans. Both fight for control of the land they once partnered to develop.
Complicating matters is the fact that the Lehman bankruptcy is being heard in Manhattan, while the SunCal projects bankruptcies are in California.
Lehman’s bankruptcy spokeswoman Kimberly MacLeod had no formal comment, but said a story posted on Dow Jones' MarketWatch is accurate.
In the meantime, SunCal said it has plans to get busy again with development of the three parcels it now controls.
As part of the purchase of McAllister Ranch, the Bakersfield development, SunCal resold 1,400 acres to Rosedale Rio Bravo and Buena Vista water storage districts for water banking purposes, retaining development rights on the remaining 600 acres as well as infrastructure already in place for the community, which includes a Greg Norman–designed 18-hole golf course.
McSweeny Farms already had extensive development work, including infrastructure, occupied homes in the first phase, and a community recreation center completed when Lehman collapsed. SunCal is collaborating with the hedge fund run by John Paulson to manage the project.
SunCal plans to finish the development plans for SummerWind Ranch, which were underway before the bankruptcy.
Teresa Burney is a senior editor for Builder magazine.