Development-Wise Fontana Yearns for Respect : City Looks to Bright Future With Cash Flow from Revitalization Projects

If making a decent profit is good for the real estate industry, it can’t be bad for the city of Fontana, reasons Neil A. Stone, development agency director for the San Bernardino County community of 50,000.

Stone gave up the good life of a private real estate consultant on the Westside, including a home in Santa Monica, when he moved to this largely working-class city in 1983, but the challenge was just too much to pass up, he said in an interview.

“Fontana is much more than Kaiser Steel and high winds on the San Bernardino Freeway,” he said with infectious enthusiasm. “It has a 14-square-mile redevelopment area--the largest single redevelopment area in California--and is involved in true joint-venture partnerships with several developers. We’re pioneers in new relationships between cities and developers that have developed since Proposition 13.”

One way to determine the future of Fontana is to add up the amount of land that is undeveloped. Of the 34 square miles in the city limits, fully 21 square miles, or almost two-thirds of the city’s area, is within a redevelopment area, Stone said. With sensitive development, the city could easily accommodate a population of 200,000, he added.

What makes Fontana unusual, if not unique, among California’s cities is not the use of redevelopment areas or specific plans, he said. Such tools are widely used by today’s sophisticated communities.

Instead, it is the concept of equity participation between the city and developers. The city has been able to negotiate agreements with developers to provide Fontana with an income stream, just as any private-sector partner would expect.

“In the post-Proposition 13 era, it makes more sense to share in equity and cash flow from large developments than to rely on property tax revenue,” Stone said. “While Fontana considers that it is important to provide incentives to the private sector in order to receive new tax revenue, the city only considers itself a real partner when it works together with the private sector to create a new development in which both partners receive equity and cash flow.”

Take the massive West End Project, for instance (a lot of cities in the Inland Empire and elsewhere would like to have it.). In this new city within a city scheduled to be built out in the middle of the next decade, Fontana will provide 50% of the capital and receive 25% of the cash flow and 25% of the equity.

The West End project is being developed by veteran Los Angeles-based builders Richard Barclay and Joseph DiIorio, organized as BD Investors.

It’s a first-class community, able to compete with Terra Vista and Victoria in nearby Rancho Cucamonga, Stone said. The land plan was designed by the SWA Group of Laguna Beach, a firm that has worked on such prestigious developments as Walt Disney World in Orlando, Fla., Newport Beach Center and Fashion Island in Newport Beach, the Arco Towers in downtown Los Angeles and Allen Center and Inn on the Park in Houston.

Bounded by the Devore Freeway (Interstate 15) and East Avenue on the west, Foothill Boulevard on the south and the Southern Pacific tracks on the north and east, the development has a marketing name of “The Heritage,” has about 1,300 acres and will eventually contain 3,750 housing units ranging from rental apartments to estate homes. It also will have 100 acres for office and institutional uses, 270 acres of business parks, 37 acres of commercial, 60 acres of parks, schools, libraries, police and fire stations and a community center, according to John B. Stephenson of BD Investors.

DiIorio has been involved in several other master-planned communities in California and elsewhere, including Columbia, Md., perhaps the first of the new breed of American “new towns” that include Reston, Va., The Woodlands, Tex., near Houston, Westlake Village, Valencia and Irvine. Barclay, founder of Barclay Hollander Curci, has developed such projects as Mountaingate, Santa Monica Business Park, LAX Business Center and Westside Towers in his more than 30 years in the business.

“Fontana is doing large-scale land planning in such a way to ensure economically and environmentally sound results,” DiIorio said. “We are creating a pleasant community with affordable housing in a convenient location.”

A second partnership in the largely undeveloped northern sector of Fontana is in the 14-square-mile redevelopment area. The city’s redevelopment agency is developing a 145-acre senior citizen master-planned community on the site of the old Gilfillan Airport.

Joint venture partners are Westech Universal Capital Corp., Beverly Hills, and U .S. Care, Marion, Ind., Stone said. The $150-million project will include 1,100 rental units, estate housing, a golf course and a 15-acre shopping center, and is expected to be completed over the next 10 years.

“We’re financing the Gilfillan project with tax-exempt bonds based on the credit of Westech, underwritten by the New York-based securities firm of Thomson McKinnon Securities Inc. and sold by the city of Fontana,” Stone said.

Only state agencies or municipalities can issue such bonds, which result in a 3% or 4% lower interest rate for the developer, according to John Auth of Thomson McKinnon.

“Fontana will receive 50% of cash flow and 25% of equity in this project, too,” Stone said. “This translates at the project’s 10-year build-out into enough income for the city to increase its budget by 10% and for the limited private investors, a return of 17% cash-on-cash per year.”

In a third partnership, the city is putting public improvements on 700 acres of industrial land, that Kaiser is annexing to Fontana. About 200 acres of light industrial use will be built on the property, according to Manuel J. Ruiz, manager, real estate planning and development for Kaiser Steel.

According to Stone, the city will receive 7 1/2% of the cash flow from development of this land in the first agreement Kaiser has ever made with Fontana.

Contrary to popular belief, the now shuttered steel mill, built about 45 years ago, has never been within the city limits of Fontana and thus has never contributed property taxes to the city’s coffers.

In a fourth partnership, Creative Communities, a Huntington Beach-based land development, the largest investor in Fontana, and the city have collaborated on a four-square-mile, 8,800-home residential development called Southridge.

Dick Ashby of Creative Communities explained that the aim of the new community is to create a quality environment without pricing out out those who can’t afford to live in the Irvines and Westlake Villages. His firm is responsible for building the infrastructure, schools, parks and main thoroughfares.

“We’re land developers, selling lots to builders like Brock, Meyer Homes and Kaufman & Broad,” he said. “It takes a minimum of six or seven months to obtain approval for a development like this in even the most growth-minded city. We got approval from Fontana in 45 days. The way to keep home prices down is to have cities work quickly with builders,” Ashby added.

Nathan A. (Nat) Simon has lived in Fontana since 1944, when the Kaiser plant was being built. He moved to the still rural community because he saw it as a place of opportunity for a man who ran a hardware store. He retired from the hardware business in 1978 and has been both a councilman and mayor of the city. His current term as mayor runs through 1986.

“We don’t believe in playing games with reputable builders,” Simon said. “We tell them to bring in their plans and we’ll give tentative approval in a couple of weeks. We meet to discuss development every Thursday morning. This is part of our fast-track approach to quality development.”

As an example, Simon cites the case of Standard Brands Paint & Home Decorating Centers. When the chain decided to build a store in Fontana, approval came within two months.

“Standard Brands is trying to put in a store in San Francisco and three years after they began, there still is no store on the site,” Simon said, with more than a little scorn in his voice.

While Kaiser has always been a major employer in Fontana, the gradual phasing out of its plant and its final shutdown Dec. 31, 1983, wasn’t the disaster that plant closures were in other cities, asserts City Manager Jack Ratelle.

“We’re the Rodney Dangerfield of West End cities,” Ratelle said, using the term “West End” to refer to communities in that high-growth western area of San Bernardino County nearest to Los Angeles. “We’ve always had a diversity of employment, but it’s Kaiser, Kaiser, Kaiser to anyone who hears the name of the town. We just don’t get credit for the 40 industries and more than 6,500 employees in the town.”

Still, he admits that when he came to Fontana 13 years ago from the San Diego area, a good 70% to 80% of the town’s work force punched in at Kaiser Steel.

“We have several heavy-manufacturing firms, but the emphasis today is on distribution and service,” Ratelle said. “The West End--Rancho Cucamonga, Ontario, Fontana, Rialto and Colton--is really competing with Nevada for warehousing and distributive facilities.”

Like other communities in the West End--most notably Ontario and Rancho Cucamonga--Fontana’s location near the intersection of Interstates 10 and 15 makes it ideal as a distribution/warehousing location.

Fontana has had success in attracting its share of businesses, and has even been able to lure the California Jaycees to move from their present headquarters in San Jose to Fontana, Stone said.

“In the last 18 months, 12 major companies have announced plans to relocate facilities or expand present ones in Fontana,” he said.

Among them are Major Safe Co., which will consolidate its Southern California plant facilities in Fontana; JM Manufacturing, a subsidiary of Formosa Plastics, Taiwan’s largest company, which will build a new facility; and GAF, which is expanding its current operations.

There is even hope for steel manufacturing--albeit on a much smaller scale--at the old Kaiser plant, he said. An international group, consisting of Michael Wilkinson of Long Beach, Japan’s Kawasaki Steel Corp., the third-largest in the world, and Brazil’s Compania Vale Do Rio Doce, are “seriously investigating” plans to reintroduce steel making with employment of up to 1,250 there within three to five years, as reported in The Times Sept. 28, 1984.

Even a Rodney Dangerfield of a town like Fontana may be in for a little respect as long as developers continue to like the treatment they receive from the city.