Lawyers Blamed for Costly Delays : Developer Claims Litigation Drives up Prices of Housing

“The first thing we do, let’s kill all the lawyers.” King Henry VI--Part II, Act IV, Scene 2.

Michael L. Tenzer would agree with Shakespeare’s often quoted--and misquoted--line and he might even go so far as to include the more radical consumer activists.

Speaking last week at the 19th annual seminar of the National Assn. of Real Estate Editors here, Tenzer, chairman of Leisure Technology, West Los Angeles-based developers of residential communities for active “older Americans,” blamed lawsuits filed by members of the legal profession for delays that drive up the price of housing.

The major culprit, he indicated during a question-and-answer session on the last day of the three-day program, is the contingency- fee system that affords obstructionists the opportunity to delay housing developments almost indefinitely, or until the builder goes broke, whichever occurs first.

Tenzer said that much litigation stems from “rising consumer expectations--often unrealistic expectations--clashing with declining standards as the highly skilled older workers retire to be replaced by younger ones lacking the same standards.”

He cited product liability cases and lawsuits by condominium associations against architects that have resulted in some architects forgoing commissions for attached-home developments.

He even suggested using lawyers instead of laboratory rats for medical experiments: “You don’t have to worry about developing any emotional attachment to the lawyers.”

The decline of affordable housing can be blamed on such events, not the cost of materials or the cost of land, he said, adding that California residential construction workers are the most productive in the nation, if not the world, and consistently outperform lower paid factory workers producing manufactured housing.

Leisure Technology is the developer of Leisure Village in Camarillo, and is currently developing the 1,700-unit Leisure Village Ocean Hills retirement community in Oceanside. The firm has more than a dozen projects from New Jersey to California.

Barry Berkus, head of a Santa Barbara-based architectural firm, was in charge of the “European Village” architectural approach to the Oceanside Leisure Village. Speaking on the same panel as Tenzer, he predicted that manufactured housing--especially the wet-core modular variety--would continue to gain in popularity in the nation as the 21st Century approaches.

He urged housing manufacturers to stop copying stick-built (conventional on-site construction) housing designs, and cited examples of designs his firm has produced for manufactured housing concerns. Most recently, a house manufactured in Wisconsin and designed by the Berkus firm was displayed at the annual convention of the National Assn. of Home Builders in Houston last January.

Tenzer and A. Cal Rossi, San Francisco-based developer of the Warner Springs Ranch, agreed that the aging of the population will make vacation retreats and retirement homes more and more popular through the year 2000, and beyond.

Tenzer said that the strongest retirement markets for the next several years will continue to be in Southern California, New Jersey, New York, South Carolina, Arizona and Florida. Many retirees--most in fact--move to developments not far from their old homes to be near their children and friends, he added.

Rossi said the undivided- interest concept of marketing Warner Springs Ranch in the back country of San Diego County is a recognition of the realities of the high cost of second-home ownership. Buyers can stay up to 14 days in succession in Warner Springs, where the concept is to subdivide the ownership rather than subdivide the land.

Another seminar speaker, Ernest W. Hahn, said that the future of the shopping center is the “festival marketplace” downtown or elsewhere. The more than 50 real estate writers from around the country at the seminar toured a prime example of this approach, Horton Plaza.

The 900,000-square-foot center, anchored by Nordstrom, Broadway, Robinson’s and Mervyn’s department stores, is scheduled to open in August.

Hahn, the West’s largest shopping center developer, said that Horton Plaza is designed to be a catalyst in the revitalization of downtown San Diego, similar to the Renaissance Center in Detroit and similar projects in cities as dissimilar as Toledo, Ohio, Baltimore and Boston.

Hahn and other seminar speakers, including Dan Pegg, president of the San Diego Economic Development Corp., and Sanford R. Goodkin of the Goodkin Group, La Jolla, predicted that Horton Plaza will be successful in attracting suburban shoppers to what some call the most deserted downtown in the nation. San Diego has more than 900,000 residents, but currently lacks a major downtown department store.

Pegg, whose primary responsibility is attracting industry to San Diego, said the city’s advantages of excellent climate and low unemployment are often outweighed by the excellent packages offered to industry by cities like Colorado Springs, Colo., Denver and Detroit. Fees and the cost of land in San Diego drive up the price of housing to the point where the city is not competitive for new industries, although the existing ones are doing fine, Pegg said.

He added that the perception throughout the nation that California is anti-business has been turned around in the first three years of Gov. George Deukmejian’s administration, tactfully omitting the name of former Gov. Edmund G. Brown Jr., the source of much of the anti-business perception.

Edwin J. Gray, chairman of the Federal Home Loan Bank Board since 1983, said that despite well-publicized problems, the nation’s savings and loans are still a major force in housing finance. Last year, savings and loans originated $120 billion in residential mortgages and $30 billion in multifamily mortgages--half of all mortgage loan originations.

Gray attacked the aggressive S&Ls; that took advantage of thrift deregulation to turn thrift institutions into the “functional equivalent” of commercial banks, saying that the Garn-St. Germain Act of 1982, which deregulated thrifts, was not intended to erase the distinctions between banks and thrifts.

“The preamble to that act reaffirms the role of thrifts in financing housing,” he said. Congress and many others in the industry failed to anticipate what happened--in California and elsewhere--when thrifts began making unlimited investments and indulging in such non-housing-related activities as corporate greenmail, junk bonds and windmill farms, Gray said.

“Thrift deregulation cannot be entrepreneurial because the true entrepreneur uses his own money, and the thrifts use funds of depositors,” Gray said. “The motto with a lot of thrifts seems to be ‘heads I win, tails the FSLIC (Federal Savings & Loan Insurance Corp.) loses.’ ”

One approach to rein in thrifts that persist in making risky investments may be forcing them to pay higher FSLIC premiums, reflecting the greater risk of the investment, he said. In any case, Congress will take some action, he predicted.