Stein-Brief Faces Default on Laguna Niguel Property

Less than 2 1/2 years after consummating one of the largest real estate deals in Orange County history, the Stein-Brief Group is in default on a $49-million loan, according to the leading lender on the firm’s huge Laguna Niguel coastal development.

Notices of default were recorded April 17 by San Diego-based Avco Community Developers against the Stein-Brief Group, a development partnership of David Stein, an influential Democratic activist, and Orange County builder Barry Brief.

Paul Zimmer, president of Avco Community Developers, said Tuesday that the Stein-Brief Group had failed to make a $4.3-million loan payment that was due to Avco in December.

Stein and Brief grabbed the development community’s attention in September, 1983, when Avco sold 550 prime acres to Stein-Brief for about $80 million, paid for in part by a $58-million note taken back by Avco. Zimmer said the unpaid portion of the note now amounts to $49 million.

Zimmer said that Avco, after waiting several months for Stein-Brief to come up with the $4.3-million delinquent payment, last week decided to take the first legal step toward foreclosing on the approximately 400 acres of property remaining from the 1983 transaction that have not yet been developed or sold off to other builders.

Neither Stein nor Brief could be reached for comment Tuesday. But Chris Downey, Stein-Brief’s executive administrator, said the partnership was trying to restructure loan agreements with its lenders, which, in addition to Avco, include Mission Viejo-based Beverly Hills Savings & Loan Assn. and Western Savings & Loan Assn. of Salt Lake City.

Downey said, “It is our understanding that it (the notice of default) will not impact Stein-Brief’s day-to-day operations.”

When Stein and Brief originally negotiated to buy the Avco coastal property, there was considerable skepticism among real estate experts over whether the two brash young entrepreneurs--Stein then was 35 and Brief 42--could pull off the development.

Adding to the doubts was the timing of the acquisition, since the housing industry was still struggling to emerge from a recession.

Party on Yacht

In January, 1984, Stein-Brief Group held a party on a 100-foot yacht anchored off Laguna Niguel to unveil plans for its $1-billion Monarch Beach development. The plans called for the creation of a Mediterranean-style, guarded-gate community of 3,400 homes where the price of lots alone would range from $200,000 to $1.8 million.

Center stage in the resort-like development is the 2-year-old Ritz-Carlton Hotel, near which Stein-Brief has built an 18-hole golf course and plans to put another hotel, business conference center and health spa.

Within the last year, several of Stein-Brief’s development proposals--including plans for a commercial center on Coast Highway and a large condominium project at the intersection of Crown Valley Parkway and Camino del Avion--have been delayed and scaled down because of protests from local residents. The projects sparked neighborhood concerns about traffic and obstructed views.

Zimmer said Stein-Brief officials have told him that planning changes and the length of time involved in obtaining government approvals have delayed Stein-Brief’s land sales to builders and contributed to the partnership’s financial woes.

Comment Declined

Downey would not discuss the cause of the company’s problems or any possible resolutions with its lenders. “The discussions are perhaps best served by not talking about them publicly. We don’t have any signed agreements,” he said.

It was unclear Tuesday whether Stein-Brief has missed payments to its other lenders. As part of the 1983 transaction, Beverly Hills Savings & Loan provided Stein-Brief a cash loan of $28 million and Western Savings & Loan provided a credit guarantee of up to $10 million.

Beverly Hills Savings & Loan President Dave Bretoi also declined to talk about ongoing negotiations, saying only that the financial institution is “still actively working on the (Stein-Brief) development.” Officials at Western Savings & Loan were not available to discuss the matter.

Members of the development industry who are close to Stein-Brief said the company is considering cutting a deal in which it would give back a significant portion of its land to one of its lenders. Another possibility, they say, is that the partnership will bring in yet another financial investor.

Needs Avco Approval

Any loan-restructuring agreement would have to be approved by Avco. Because Avco holds the first trust deed on Stein-Brief’s Laguna Niguel property, it would be the first lender to be paid by any land sale or infusion of capital by a new financial or joint venture partner.

Zimmer said that Stein-Brief was having difficulty a year ago making loan payments. In response, Avco restructured its loan by extending the payment schedule to give the company more time to get its development plans rolling.

When Stein-Brief failed to make the December payment, he said, the partnership indicated that it soon would pay the debt through refinancing or a property sale.

When Avco finally filed a notice of default, he said, “We felt we had waited as long as it was prudent. . . .”

Doesn’t Want Foreclosure

Zimmer emphasized that Avco would rather be paid by Stein-Brief than foreclose on the property. Avco Community Developers, a subsidiary of Greenwich, Conn.-based Avco Corp., discontinued its development operations in 1982. That change in corporate course prompted Avco to sell its main coastal property holding to Stein-Brief.

Zimmer said Avco chose to sell the Laguna Niguel property to the partners because “they came in with an excellent proposal and good backing (from Beverly Hills Savings & Loan and Western Savings & Loan) to the tune of $38 million.”

Moreover, Stein had worked for Avco as general manager of the Laguna Niguel development in the mid-1970s. “He (Stein) was familiar with the property and the Orange County marketplace and the coastal community,” Zimmer said.

Under the legal process, Zimmer said, Stein-Brief will have 90 days from the date of the notice of default to make its loan payment before Avco will file a notice of intention to sell property at foreclosure. Stein-Brief then would have yet another 21 days to make good on the loan before a foreclosure could take effect.

Zimmer said the Stein-Brief Group “seems to be very optimistic” about halting foreclosure.

He added, “We think they are being very diligent” in trying to work out their problems.