Orange County Developer : Friends, Foes Watching Stein Comeback Efforts

When David Stein was promoted to general manager of Avco Community Developers in Laguna Niguel in the midst of the 1975 real estate recession, the then-27-year-old executive bought a white Rolls-Royce convertible, in part to dispel rumors that the company was in trouble.

Stein and Avco rode out the downturn. But the purchase of the Rolls Corniche raised eyebrows at the time and helped to give Stein an image that has followed him ever since--that of a brash, dauntless entrepreneur who can succeed against the odds.

Today, at 38, Stein faces possible foreclosure on his proposed $1-billion Monarch Beach resort development in south Orange County, while both friends and foes are watching to see if the flashy developer and nationally known Democratic Party fund-raiser can work the magic again.

Two and a half years after Stein and his partner, Barry Brief, pulled off one of the biggest land buys in Orange County history, they have fallen into default on a $49-million loan, secured by the Laguna Niguel property, from Avco Community Developers.

Some real estate analysts say it will be difficult for Stein to find another backer. They say that he and Brief paid too much for the property to make the development profitable.

But Stein says land sales to builders in the project are picking up and he expects to find new financial backing any day now.

In the past, Stein has always landed on his feet--even if his projects have not. Before embarking on the Monarch Beach development, Stein made large profits on land sales, but his building ventures did not fare so well:

- Mariner’s Point, an expensive bluff-top tract of 44 Mediterranean-style homes that Stein built in San Clemente, was plagued by poor sales. The lender, Union Federal Savings & Loan, and Lincoln Mortgage Investors, a former Fullerton investor group, say they lost money on the project. Union Federal ultimately took over seven of the lots to settle the debt, according to a title search done for The Times by Ticor Title Insurance Co. in Santa Ana.

- Title records also show that in 1982 Crocker Bank foreclosed on an unsuccessful 24-home expansion of Mariner’s Point, called Palacio del Mar, in which Stein was the general partner and Brief was one of the limited partners.

- Earlier the same year Security Pacific Financial Corp. foreclosed on Mamosa View Estates, six lots that Stein planned to develop with estate homes, according to the title records on file at Ticor.

- Also, a title search by Chicago Title Co. of San Diego shows that in December, 1981, Lone Jack Development Co., in which the Stein-Brief Group was the general partner, deeded 60 lots in north San Diego County to Crocker Bank instead of repaying a $5.6-million loan that Crocker had made on the property.

Ted D. Nelson, chairman and chief executive officer of Winn Enterprises, an Anaheim-based dairy product processor, said that he, his brothers and some friends invested in Palacio del Mar and Mamosa View Estates. “We lost all our money,” he said, though he would not say how much was lost.

Depression Cited

Stein, responding to Nelson, said, “I think Ted has used me as a scapegoat.” Stein said most of his early building projects were hit by “the worst real estate depression since the Great Depression,” when many other builders also were forced to scuttle development plans.

Stein attended Trinity University in San Antonio, Tex., majoring in political science and home building, an unusual course of study offered at the school. After graduation, Stein joined New York-based ITT Levitt & Sons. At 22, he was the youngest project manager in the firm’s history.

Stein, who says he was attracted to home building “because of a love of art and architecture,” learned about production housing and community planning with Levitt. But he said he was looking for a more creative challenge and so in 1972 joined Avco Community Developers in Laguna Niguel. He said he felt that “if I ever was going to do something creative and different in design, this is the place I would do it.”

Regarded as a boy wonder at Avco, Stein rose quickly and in 1975 became general manager of the company’s Laguna Niguel division. His major achievement was to end Avco’s long-festering war in the courts and Legislature with the California Coastal Commission, which had tied up Avco’s projects on the Orange County coast. But after scoring that victory, Stein said he was ready to go out on his own as a builder.

Land Deal Gained Notice

In 1979, after several unsuccessful building ventures, Stein joined with a friend, builder Barry Brief, to form the Stein-Brief Group. Soon they engineered a land deal that catapulted them into the spotlight.

In 1980 they paid Avco $11.6 million for 330 acres in Laguna Niguel that they planned for development and sold the next year to Broadmoor Homes and Carma-Sandling Group for $31 million. They also sold Carma-Sandling 33 acres in Palm Desert, which they had purchased a year earlier for $3 million, for $12 million. Stein said he and Brief decided to sell rather than develop the Palm Desert and Laguna Niguel properties because they correctly foresaw a continued worsening in the housing market.

The duo celebrated their success--partly by passing out $2 million in bonuses from the proceeds of the land sales, Stein recalled. Also, Stein gave Brief a Porsche for his birthday and Brief reciprocated on Stein’s 34th birthday by renting the Golden Bear nightclub in Huntington Beach for a private audience with Stein’s favorite musician, blues singer B.B. King. “I guess I like the blues so much because I’ve never had to sing them,” Stein later quipped.

Stein’s friends respect him for his wide-ranging business, charitable and political endeavors. In a relatively few years, he has skyrocketed to prominence as one of the two or three top Democratic Party fund-raisers in Orange County. His work on behalf of Sen. Gary Hart’s presidential bid in 1984 also gave Stein a national political image, culminating in his election to the Democratic National Committee.

“He is not unlike Muhammad Ali and Ted Turner, people whom he admires partly because of their brash, dare-to-do attitude,” said Jim Smith, a private builder who formerly worked with Stein.

Stein’s admirers recall that in a 1977 Orange County Grand Jury hearing, Stein testified against Ralph Diedrich, the then-powerful Orange County supervisor who was ultimately convicted of taking bribes and concealing sources of campaign funding.

Bob Nelson, chairman of the board of Nelson-Padberg Consulting, a Costa Mesa-based public-affairs and political-campaign agency, praises Stein as an “idea man in politics, a rare individual . . . capable of raising money and able to stretch the imagination of a politician.”

Nelson (who is not related to Ted Nelson) counts Stein among his best friends and has appointed him executor of his will. He says Stein “has a heart the size of Kansas” and has canceled business meetings to assist friends in trouble.

Some Say He’s Fickle

But others say that Stein’s affections are fickle. “As long as you have present value, he is your best friend,” said one political associate who asked not to be named.

Stein and Brief are opposites--in skill and temperament. Stein brings design skills and diplomacy to the partnership; Brief, 44, is an experienced builder and marketer of homes who earlier in his career was director of marketing and sales for the Larwin Co. and division president of Leadership Housing in Newport Beach. He left Leadership in 1974 to found his own home building firm, which had established a record of success before Brief joined Stein.

Unlike Stein, who wears three-piece suits, Brief dresses casually, preferring sandals to shoes. While Stein is known as a “smooth talker,” Brief is said to be high-strung and volatile. Stein pursues the limelight and mingles with such well-known figures as Jane Fonda and Sen. Edward M. Kennedy (D-Mass.), while Brief avoids personal publicity. Brief refused to be interviewed for this story.

Dark, curly-haired and single, Stein drives a sleek, black Aston-Martin Loganda and with Brief owns the Tavern by the Sea restaurant near Stein’s custom-designed home in Laguna Beach. Stein also has houses in Maui and Palm Springs and has plans to build an elaborate compound with guest houses, roof-top gardens, art gallery and an underground theater on acreage next to the ocean in Laguna Niguel.

‘Think of Presidents’

Ed Lohrbach, the architect who designed Stein’s contemporary-style Laguna Beach home and has drafted drawings for the compound, said Stein told him that in styling the compound, he should “just think of Presidents staying here.”

Among varied pursuits, Stein is a past president of the Orange County Building Industry Assn., serves on the board of directors of the South Coast Repertory Theatre and, along with Brief, is co-founder of the Orange County African Relief Fund. He also helped to establish Newport Beach-based Pacific National Bank and is chairman of the bank’s holding company.

But some in the Orange County development community said they were not shocked to learn that the Stein-Brief Group had defaulted on the $49-million loan last December by missing a $4.3-million payment to Avco Community Developers.

Stein-Brief bought 550 acres of Orange County coastal property from Avco in September of 1983 for $80 million.

The group convinced Avco to take back a $56-million note, since reduced to $49 million. It also obtained a $28-million cash loan from Beverly Hills Savings & Loan and a credit guarantee of up to $10 million from Western Savings & Loan.

Critics say Stein-Brief mistakenly figured that demand for the luxury properties at Monarch Beach--currently ranging from $200,000 for a condominium to more than $1.5 million for an undeveloped oceanfront lot at Monarch Beach--would quickly bounce back to levels of a few years ago.

Michael Meyer, managing partner of the Newport Beach office of Kenneth Leventhal & Co., a real estate accounting specialist, noted that since 1980 the value of expensive coastal homes in Orange County has plunged by as much as 40% and is only now starting to rebound.

Homeowners in Laguna Niguel, meanwhile, have organized a campaign to pare down some of Stein-Brief’s development plans when they come before the Orange County Board of Supervisors and California Coastal Commission for approval. Because of community concerns about traffic, the Board of Supervisors recently instructed the company to reduce the size of a planned retail, office and hotel complex by 27%.

Praise Won for Design

Despite opposition to the density of the planned coastal development, Stein-Brief’s plans for the Monarch Beach resort community have won praise for design.

“He (Stein) does tend to do things in style,” said Robert Fisher, planning director for the Orange County Environmental Management Agency. He said Stein-Brief’s commercial development plans have “something of the flavor of the new (renovated) Fashion Island (shopping center in Newport Beach), even a hint of Rodeo Drive.”

The entire Monarch Beach project, which adjoins the 2-year-old Ritz-Carlton hotel, which Stein-Brief does not own, is planned for more than 2,600 homes and intended by its developers to have a status “on a par with Pebble Beach, Palm Springs and the state’s other notable residential-resort areas.”

Besides doing pre-development work on grading, utilities and roads, Stein-Brief so far has completed construction only of an 18-hole golf course. It also has prepared 44 lots abutting the golf course, priced from $250,000 to $400,000, of which the company says it has sold about half to custom-home builders.

Builders Buying Land

Construction companies affiliated with Stein-Brief are building 518 homes in four projects that were undertaken with financial partners. One of the four, a single-family project of 119 homes called Regatta, has been selling well. Stein-Brief says that 85 of the homes were sold before construction began.

In addition, Stein-Brief has sold some Monarch Beach land for development of two apartment complexes to Hon Development Co. and Regis Homes, two Orange County-based builders. One 324-unit apartment complex is built and occupied.

Stein-Brief says it soon will begin construction with a financial partner on another 70-unit town house project and has plans for a joint-venture development of a 550-room hotel-conference center that will be managed by Hyatt Corp.

Stein said he has “no comment” on community opposition to his plans and and denies allegations by members of the local real estate community that development of Monarch Beach has been slowed by high land prices.

Stein-Brief spokesman Chris Townsend said the company has experienced a recent surge at Monarch Beach in land sales to builders. He said Stein-Brief expects $60 million in such sales to close within the next 30 to 45 days, which he said will yield “more than enough (revenue) to bring our debt current.”

In addition, Townsend said, the five residential projects that Stein-Brief is developing in partnership with other builders and financial institutions are anticipated to generate $142 million in gross sales revenue over the next 36 months.

The primary problem facing the Stein-Brief Group, Stein said, is its current financing arrangement for Monarch Beach, which he said he is “working night and day” to change.

S&L; Takeover Hurt Sales

Stein said land sales at Monarch Beach were hampered by the April, 1985, takeover of Beverly Hills Savings & Loan by the Federal Home Loan Bank Board after the S&L; was found to be insolvent. For months, he said, builders were reluctant to buy land in the project for fear that the bank’s problems could lead to a collapse of the planned development.

Also, Stein-Brief spokesman Townsend said that under his company’s existing agreement with Beverly Hills Savings & Loan, the bank is committed to finance only pre-construction work on the Monarch Beach development and land sales to builders. He said Stein-Brief had anticipated that the bank also would make loans for construction projects on the property, but the bank apparently is unable to do so.

Dave Bretoi, president of Beverly Hills Savings & Loan since Jan. 21, refused to comment on negotiations with Stein-Brief, saying: “It is not our policy to negotiate loan transactions through the media. However, we feel we have met our commitment to Stein-Brief.”

While Stein also declined to discuss negotiations with his lenders, Paul Zimmer, president of Avco Community Developers, said Stein and Brief “believe they are very close to negotiating a transaction to bring in a financial partner who would provide the financing to cure their default and proceed with the project. . . . I do hope so.”

In his first venture as an independent builder--the San Clemente Mariner’s Point project and its addition, Palacio del Mar--Stein constructed 68 expensive Mediterranean-style homes on hills overlooking President Richard M. Nixon’s former Western White House and the Pacific Ocean. Although the project won marketing awards, the homes didn’t sell well and Palacio del Mar went into foreclosure.

Critics’ Views

Some who were involved in the San Clemente projects fault him for designing homes that were too grandiose and otherwise unsuited for the market and for abandoning sales efforts when the going got rough.

“Stein is interested in David Stein,” one investor said. “He tends to divorce himself of a situation when times get tough and let everyone else hang.”

According to Warren H. Kelsey, formerly a trustee of Lincoln Mortgage Investors, which he said invested more than $1 million in Mariner’s Point, Lincoln’s trustees ultimately asked Stein to reassign his partnership interest in the project to them, in return for absolution from any financial or legal liability. Stein agreed.

“All we wanted him to do was go away,” said Kelsey.

Roger L. Kringen, president of Union Federal Savings & Loan Assn., lender to the Mariner’s Point project, said he later was amazed to learn that Stein-Brief had obtained the $80 million to finance Monarch Beach.

“I was surprised he (Stein) was able to obtain a loan of such magnitude after the difficulties he had in San Clemente,” Kringen said.

Stein denies that he shirked his responsibility to investors in the San Clemente developments, saying he went so far as to ask Brief to personally help out with the sales effort. Stein said he also offered to invest $600,000 of his company’s money in Palacio del Mar if Crocker Bank would agree to provide favorable mortgage financing to sell the houses. But he said Crocker refused. Crocker declined to discuss the project.

“There is no investor who loses money who is going to be a happy investor,” Stein said.

Wary of Small Investors

In retrospect, Stein said he learned not to enter development ventures in partnership with small investors who don’t have the “staying power” necessary to ride downturns in the market.

Some of the former investors said they first began to worry about Stein’s role in the Mariner’s Point project after he arranged a lavish party to mark the opening of development.

Kelsey, who sat on a Lincoln Mortgage Investorsmanagement committee for the project, said Stein spent $50,000 on the party, which he said far exceeded the amount approved for the party.

In the Mariner’s Point development, critics say Stein misjudged the market by building luxury homes designed to appeal to a limited market of well-to-do retirees. “The biggest flaw in the San Clemente project was the design,” said a former Stein-Brief employee who asked not to be named. “He (Stein) was designing to win awards and not to sell houses.”

A former salesman on the San Clemente project blamed its failure on exorbitant prices, recalling that in the first phase the homes originally were offered in early 1980 at $250,000 to $360,000. “There just weren’t enough fools out there,” he said. Later, he said, the project was devastated by “a recession on top of impossible interest rates.”

Kelsey and C. Eugene Hutchins, who was president of Lincoln Mortgage Investors, said Stein “lost interest” and stopped actively working to solve the project’s problems. “He (Stein) absolutely rejected all responsibility once things went sour on him,” said Kelsey.

Dan Montano, president of a small Tustin investment banking firm and another former Lincoln Mortgage Investors trustee, said he feels “a tremendous sense of remorse” for introducing Stein to some of his investor friends. “I refuse to have anything to do with him,” Montano said.

At the same time that the San Clemente projects were in trouble, Stein and his new partner, Brief, were making a killing on their first big land sales in Palm Desert and Laguna Niguel. Kelsey and Hutchins thought Stein was flaunting his success on other deals while the San Clemente project was languishing.

Kelsey recalled that about the time Stein and the worried investor trustees in Mariner’s Point were discussing severing their relationship, Stein drove up to the project “in a stretch limo with a chauffeur.”