SDG&E; Real Estate Subsidiary Sues Over Belmont Park, Other Losses
Phase One Development, San Diego Gas & Electric’s wholly owned real estate development company, has filed fraud charges against a former executive in connection with the construction and leasing of Belmont Park, the troubled retail center in Mission Beach, and six other developments in California and Colorado.
Belmont Park’s opening was delayed from early summer until September, and the center remains only 38% filled. First estimates suggested that the retail center, if fully leased, would generate $19 million in first-year sales. The most recent estimate reduced that total to $1.7 million.
Despite the low occupancy rate, Phase One has made payments required by its 50-year lease on the 7.4-acre, city-owned tract, a city spokesman said Monday.
Misrepresentation Alleged
Phase One’s lawsuit, which was filed last week in San Diego Superior Court, seeks $50 million from Steven L. Davis, a San Diego developer who sold Phase One to SDG&E;’s Pacific Diversified Capital subsidiary for more than $9 million in 1986.
Phase One alleged that Davis misrepresented how much money was required to complete the seven disputed projects and how much rental income those units eventually would generate, according to Barry R. Laubscher, an Irvine-based attorney who is representing Pacific Diversified in the suit.
In its suit, Phase One alleged that Davis knew he would “not complete the Belmont Park project on time and on budget.”
According to the lawsuit, Phase One expects its “losses and other damages” from the seven projects to total at least $50 million. Phase One already has invested $34 million in the disputed projects, according to the suit.
Laubscher was unable to determine what part of the $50-million total was linked to the $18-million Belmont Park project. “We don’t know how much Belmont exceeded its initial estimates,” Laubscher said. “But it is one of the more successful projects” of the seven.
Negotiating to Sell
Phase One has decided not to “pour any more money” into some of the projects, Laubscher said. Instead, it is negotiating to sell Belmont Park and some of the other disputed projects. It also is negotiating with lenders who provided capital to build some of the projects.
Phase One is the sole owner of some of the projects and the controlling managing partner of other projects that are partly owned by Davis and other investors.
Davis ran Phase One’s development business for Pacific Diversified Capital until he left the company last March. Pacific Diversified retained Davis to manage construction and leasing at Belmont until shortly after its opening last fall.
Davis, citing dire tax consequences, last week sought a Superior Court order that would prohibit Phase One from selling the disputed properties.
Pacific Diversified Capital owns Phase One and several other non-utility businesses that are not regulated by the state Public Utilities Commission.
