Finance fails for SunCal projects
Venerable Irvine builder SunCal Cos. said Thursday that it would seek federal bankruptcy protection for two of its premier planned residential developments in Southern California -- including a 45-story luxury Westside tower on one of the region’s most valuable pieces of land.
Faced with the loss of a major investor and a collapse in the demand for new homes, the company plans to file today for Chapter 11 protection for its proposed skyscraper at 10000 Santa Monica Blvd. -- designed by renowned French architect Jean Nouvel and the subject of a battle over the land two years ago that involved Donald Trump.
SunCal on Thursday also filed for protection for Marblehead, a 313-home planned community on a coastal plateau in San Clemente that has been the subject of controversy for decades.
The bankruptcies come against a backdrop of trouble for the privately held SunCal, which along with other builders is facing crushing financial difficulties.
LandSource Communities Development, the parent company of the developer building the 21,000-home Newhall Ranch community near Santa Clarita, filed for Chapter 11 bankruptcy protection in June. Utah-based Woodside Homes Inc. filed for bankruptcy protection in September.
Both the Westside and the San Clemente projects were to be funded by Wall Street investment banker Lehman Bros. Holdings Inc., which collapsed in September. Lehman Bros. had invested $2.5 billion in SunCal-sponsored developments, and its failure has prompted bankruptcy proceedings on 23 SunCal housing projects in various stages of development in California, according to SunCal.
More bankruptcy proceedings on other SunCal projects are expected to follow, company spokesman David Soyka said.
“The bankruptcy of Lehman Bros. forced SunCal’s legal action,” he said. “Lehman is unable to fulfill its financing obligations.”
The bankruptcy filings, including one last week for a planned 2,000-home project in the Sierra foothills of Placer County called Bickford Ranch, have involved partnerships set up by SunCal to do the developments. SunCal itself has not filed for bankruptcy protection.
The 70-year-old company is facing a struggle, though, said housing industry consultant Tara Bleakley, vice president of John Burns Real Estate Consulting in Irvine.
SunCal needs to make quick decisions about which projects in bankruptcy proceedings to sell off and which ones to try to hang on to, she said.
“Trying to continue doing business,” Bleakley said, SunCal “is making strategic judgments about its assets.”
Selling some projects might raise enough capital for the company to ride out the steep downward trend in the real estate cycle and allow it to develop other projects when times get better, Bleakley said.
SunCal has not identified which properties it is willing to give up, but it said Thursday that Marblehead and 10000 Santa Monica Blvd. were not among them. It hopes to find new investors for both projects.
“The bankruptcy action can lead to the development of new sources of capital,” SunCal’s Soyka said.
In the meantime, the company has what he called “an alternate funding source” of as much as $75 million to cover such expenses as maintaining wetlands at Marblehead and dust control at the Santa Monica Boulevard site.
Considered one of the most desirable locations for development in the country, the vacant 2.4-acre lot between Beverly Hills and Century City once housed the office tower that contained Jimmy’s restaurant, a celebrity watering hole popular in the 1980s.
The land was the object of a high-profile bidding war in 2006. SunCal finally topped New York developer Donald Trump with a $110.2-million offer.
Earlier this year SunCal announced ambitious plans to build a $400-million tower with 177 condos aimed at wealthy buyers in the top end of the market.
The proposed building, designed by Paris architect Nouvel, would be a narrow glass structure with sweeping views through the building and extensive greenery ringing each floor.
SunCal had aimed the project at European and Asian globe-trotters as well as local empty nesters ready to move from sprawling Westside mansions to roomy condominiums complete with concierge services, a private club, first-run movie screenings and valet parking.
SunCal had hoped to break ground next year. The project is still in the planning stages and city approvals have yet to be secured.
The Marblehead project is also in the planning stages. The housing and commercial community would rise on 243 oceanfront acres formerly used for agriculture and sewage treatment that would be turned into an environmentally sensitive development with 125 acres of open space, SunCal said.
The company has weathered many previous real estate downturns. SunCal was founded more than 70 years ago by European immigrant Boris Elieff, who died in 1990. Its finances are private, but financial information company Dun & Bradstreet estimated that SunCal had sales of $68.7 million and made a profit of almost $2 million in 2006.
But like its competitors, SunCal is facing difficult times. After good runs in the late 1990s and mid-2000s, many home builders have hit a wall.
“With more than 2 million vacant homes in the U.S., we are overbuilt,” consultant Bleakley said.
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