Condo Project Woes Embarrass Pomona

Sanford Sorenson, the city’s director of community development, stood before a crowd of northeast Pomona residents at a town hall forum last week, pointing proudly to a map marked with colored dots that represented redevelopment projects in progress in their area.

But when Sorenson pointed to the project at the corner of Arrow Highway and Towne Avenue, he turned a little sheepish.

“That’s one we’re almost embarrassed to talk about,” he told the residents.

The Cobblestone Creek condominium project, originally envisioned as a 296-unit complex of moderately priced units coupled with a refurbished shopping center across the street, has made little progress since it was approved five years ago, and the bank that made the main construction loan is foreclosing on the property.

The project and the proposed Inland Pacific World Trade Center were cited as examples of the Community Redevelopment Agency’s shortcomings in a report issued earlier this month by the Los Angeles County Grand Jury. The report faulted the agency for not adequately investigating the background of the initial developer for the Cobblestone project, who has since gone out of business.

‘Negative Feelings’

“It’s one of the examples of a lack of success that have caused some negative feelings,” said City Administrator A. J. Wilson.

Five years after the City Council approved the venture, only 64 units have been built. The plan to renovate the shopping center was dropped after the Redevelopment Agency abandoned efforts to acquire the property through eminent domain. And instead of being a cure for blight in the area, the shopping center is a symptom, the boards over its windows covered with graffiti.

Meanwhile, the current developer of the condominium project, BX Realty, has reportedly stopped paying some of its debts. California First Bank is foreclosing on the property in an attempt to recover $8.6 million in unpaid debts from a $17.5-million construction loan, according to a spokesman for the bank.

The project has also become a financial liability to the Redevelopment Agency, which is still owed more than $550,000 by BX Realty--money the agency stands to lose if the bank forecloses on the property, city officials said.

And Cobblestone Creek has become a source of anger and frustration for officials of Central Baptist Church, which is still owed more than $1.4 million for the land it sold for the project in 1983.

The church and the city, respectively, are next in line after California First Bank to collect on the unpaid debt, but city officials have expressed doubt that the land is worth the amount owed the bank.

“I doubt that we’ll get our money,” said the Rev. Ron Boldman, the church’s pastor. “I don’t think the bank can get enough out of (the property) to get their own money back. . . . The church is in a bind. We even had to close our (elementary) school because the operating funds were gone after (developers) reneged on their agreement.”

Councilman Mark Nymeyer is particularly upset by the impending foreclosure. In addition to sitting on the Redevelopment Agency board, Nymeyer is the business manager for Central Baptist Church.

Will Lose Money

Nymeyer said the church, the Redevelopment Agency and the bank will probably all lose money on the project. He said the agency, the city staff and the bank should all share in the blame.

“No one can say that there’s any one person who’s at fault for this,” Nymeyer said. “It’s a chain of events, and all of them have led to disaster. . . . Poor decisions up front and poor management along the way have led us to where we are today.”

However, developer M. J. McConnell, president of BX Realty, which took over the project in 1984, insists that all is not lost.

Although he has not decided on his legal response to the foreclosure proceedings, McConnell said he is talking with other developers in an attempt to obtain financing to pay off his debt to the bank by the June 30 deadline and finish the project.

“We haven’t given up,” McConnell said. “We’re negotiating at the present time with four or five different parties to complete the project for the full 296 units.”

Rosy Forecast

Asked to assess the likelihood that he will be successful, McConnell presented a rosy forecast.

“I’m an optimistic person,” he said. “I believe the chances of a completed project there are 100%.”

But Nymeyer is not so sure.

“I certainly would like to share his optimism, but optimism in developers of large projects in the City of Pomona is a rare commodity,” Nymeyer said. “The trade center and this project have made us a little gun-shy. . . . I don’t share his optimism, but I’m looking for him to give me hope, because right now I don’t have any.”

The Cobblestone Creek project began in 1982 as a proposal by developer Christopher Wheeler of Essex Investment Group to rehabilitate the shopping center on the southwest corner of Arrow and Towne and build a mixed commercial and residential project on the southeast corner.

Before an agreement was reached with the city, BX Realty agreed in principle to acquire Essex Investment Group.

Agency Pledge

In January, 1983, the City Council voted, 3 to 2, to approve a disposition and development agreement with Wheeler to build the project. The agreement included a pledge by the Redevelopment Agency to help Essex acquire the property with proceeds from a $1.5-million loan from the U. S. Department of Housing and Urban Development.

From the start, questions were raised about Wheeler’s background. G. Stanton Selby, a member of the council at the time who voted with then-Mayor Adrian Wright to oppose granting Essex exclusive development rights, said he tried to warn his colleagues about Wheeler’s inexperience as a developer.

“I did some investigation into the background of Chris Wheeler,” Selby said. “I found out he was a complete risk. He had no professional reputation, he had no professional background, he had nothing to base his project on. He had a little one-room office down in Anaheim, and that was it.”

However, the deal with Wheeler was supported by Councilmen C. L. (Clay) Bryant, E. J. (Jay) Gaulding and Vernon Wiegand.

Bryant said he voted to give the project to Essex because a consortium of developers represented by former City Administrator Fred Sharp was also proposing to build a project on the site. Sharp’s group wanted the agency to contribute more toward the cost of its project than Wheeler was seeking for his condominium venture, Bryant said.

‘Safer Course’

“Rather than go the route of obvious destruction, we took what seemed to be a safer course,” Bryant said. “Even though the problems with Cobblestone Creek have been great in their magnitude, they would have been greater if we’d had these other people build their project.”

Contrary to Selby’s recollection, Bryant said he remembered that Wheeler had a reputation for some successful developments in Orange County. If he had to do it over again, Bryant said, he would suggest that the council delay action on the matter to allow other developers to submit proposals.

The Grand Jury report concluded that “the files did not indicate that either audited or unaudited financial statements had been obtained from either Essex or its principal, Chris Wheeler. (Sorenson) indicated that he initially saw financial information on Essex that indicated that the principal was capable of following through on the deal.”

The Redevelopment Agency eventually spent $780,000 as a down payment to purchase a school site owned by Central Baptist Church. In return, the city received a $780,000 promissory note from the developer and a promise to pay off the note at 1.65% interest.

The church received a promissory note from the developer in 1983 for slightly more than $2.1 million, Nymeyer said, to guarantee payment of the full purchase price for the site.

‘Serious Default’

But after five months passed with no visible progress on the project, the agency notified Essex that it was in “serious default” on its obligations.

In April, 1984, BX Realty, which had guaranteed repayment of the $780,000 promissory note, assumed all obligations for Essex. At the same time, both the church and the Redevelopment Agency subordinated their financial interests in the project to the construction loan held by California First.

Essex subsequently went out of business, and Wheeler, the original catalyst for the project, was out of the picture.

“He was a real traveling salesman, making all those promises,” Selby said. “He disappeared right after that.” City officials said they do not know where Wheeler is.

Mired in Inefficiency

BX Realty then took over the project with McConnell as developer, but the venture remained mired in inefficiency, even the developer acknowledged. McConnell hired a succession of construction contractors, most of whom failed to make much headway on the project.

“They didn’t do anything but run up my debt with the bank,” McConnell said.

Nymeyer, who has kept track of the project since its inception, said money loaned by the bank was used to purchase lumber and other building supplies that sat unused for months at the project site.

“Eventually it was confiscated or disappeared or was pilfered away,” Nymeyer said. “There was no monitoring process at the bank to make sure the people in charge of construction knew what they were doing.”

Mike Colwell, a spokesman for California First Bank in San Francisco, would not comment on the project except to confirm that foreclosure proceedings are under way.

Agreed to Wait

In 1985, the Redevelopment Agency notified BX Realty of its “considerable default” on the project. The agency, which had received $230,000 of the $780,000 owed to it, agreed to wait until the condominium units began to sell for further repayment.

As a further incentive to the developer, the agency agreed to make street improvements--at a cost of $280,000--that had originally been the responsibility of BX Realty.

“That was an attempt to get the project going and viable,” Sorenson said.

Meanwhile, the church, which had stopped receiving its monthly payment of $11,000 from the developer, agreed to reduce the payment to $5,000, Nymeyer said.

In return, BX Realty agreed to add $100,000 to the principal and pay the church a bonus whenever a condominium was sold, he said. Within months after this agreement was struck, the developer stopped making payments, Nymeyer said.

“The church is out on a limb, way out on a limb, and it’s going to lose all its money unless (it) can get a judgment against Mr. McConnell, and he has some assets,” Nymeyer said.

Relinquished Power

McConnell said he has had little to do with the project since 1985, when the California First Bank required him to relinquish power of attorney as a condition of continuing the construction loan.

“The obstacle in the project has been that unfortunately, when the bank renewed the loan, I had to sign the power of attorney over to the new contractors,” McConnell said. “So what that amounted to was that I was the developer but was left without any power over the project. Now I’m getting back into it, and I hope it’s not too late.”

The new contractors, Cobblestone Creek Partners, have built model units and the first phase of the project, totaling 64 units. McConnell said the remaining phases will eventually be built. However, the contractors could not be reached to confirm this. Both phone numbers listed for Cobblestone Creek Partners have been disconnected, including one listed on a sign in front of the complex advertising for buyers.

McConnell said he hopes to regain control of the project by bringing in new development partners and paying off the debt to the bank.

Money ‘the Real Key’

“Obviously I have to raise the necessary capital, so the real key is whether I’ll be successful, since the bank has declined to continue the loan,” McConnell said.

But others are waiting for the bank to foreclose on the property, so it might be sold to another developer who could complete the project.

“I believe if that project can get into the right hands, it can be turned around,” Wilson said.

And although there has been little progress on the condominium project, city officials are optimistic about the shopping center across the street. After lying dormant for six years, the center is being purchased by a developer that plans to renovate the complex.

“We’re hoping to make it a very attractive and modern design,” said Jack Nourafshan, director of acquisitions for Reliable Properties Inc. The developer already has commitments to lease 40% of the space in the center, including an agreement with a major supermarket chain to “anchor” the facility, he said.

‘Tough Row to Hoe’

Wilson said sprucing up the shopping center could help entice a developer to complete the Cobblestone Creek condominium project.

“Very frankly, I believe the housing development has had a tough row to hoe with that (dilapidated) shopping center across the street,” Wilson said. “Ultimately, what has to happen is that the shopping center has got to (be renovated), and that will bring value across the street, and then the balance of the Cobblestone Property will be developed.”

But while the city pursues that objective, the Board of Elders of Central Baptist Church is contemplating legal action against McConnell to collect the unpaid $1.4 million.

“I hate to do that,” Boldman said. “It seems so silly. But we need to get the money back. It’s the church’s money. People have given a lot in good faith over the years, and somebody walked away with it. There are a lot of families involved in this.”

For parishioners at the church, the unpaid debt has meant that plans for a multipurpose room, senior citizens’ center and other improvements have been put on hold indefinitely, Boldman said.

“If we owed that much money, we’d have been shut down,” Boldman said. “They’d have our money, cars, clothes and houses, and we’d be out walking the streets. But these are big-money people.”