Talks Underway on Plan for Headlands : Development: Dana Point conservation group and landowners are discussing the sale of 21 of the 121 acres and scaling back the $500-million project.

Private discussions are taking place that could save part of the 121-acre Dana Point Headlands from development and perhaps affect a bitter environmental fight over one of the most controversial projects in South County.

The owners of the property overlooking Dana Point Harbor and a local conservation group are discussing a plan to sell some of the land to the Dana Point Headlands Conservancy and scale back the $500-million development project, participants in the talks confirmed Thursday.

Conservancy officials said a key element of the plan calls for their group to buy about nine acres of the most prominent, environmentally sensitive land at the tip of the peninsula, including the habitat of the endangered Pacific pocket mouse.

In addition, the conservancy would have a five-year option to buy an additional 12 acres, which is now the proposed location of a 400-room luxury hotel.

The landowner could then develop the residential portion of the project, currently proposed as 370 homes on property with sweeping views up and down the coast, conservancy officials said.

Two members of the fledgling Dana Point Headlands Conservancy said a representative of the landowners approached them to discuss the potential deal.

“The property is for sale, all of it, in five sections . . . so it might as well be to the citizens of Dana Point,” said Jacqueline Cain, a conservancy director. “That’s the last remaining open space in Dana Point and if it’s built, it’s gone forever. It’s irreplaceable.” Another director, Ernest A. Nelson, said he is “optimistic” that the talks can lead to an agreement over the headlands.

“We started out not knowing what our chances would be to win an agreement with the landowners, but now (they’re) talking,” Nelson said. “It’s still a long shot, but it can happen, it really can.”

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An appraisal on the nine acres at the tip of the peninsula is being obtained by the landowners, the Newport Beach-based M.H. Sherman Co. and the Pasadena-based Chandis Securities Co., a partnership that has owned the property since the 1940s. (Chandis Securities, a firm that oversees the financial holdings of the Chandler family, is a major stockholder in Times Mirror Co., publisher of the Los Angeles Times.)

Dan T. Daniels, president of M.H. Sherman Co., acknowledged the talks but stopped short of calling the discussions an effort toward compromise.

“We have had discussions with these folks and that’s all we’ve done,” Daniels said. “The conservancy has asked us for an option on a lot of the property. We are having an appraisal done to see if they are serious.”

Approved last April by the Dana Point City Council, the project has been the target of protests by residents who claim the development is too extensive and will destroy one of the last major undeveloped coastal properties in the county.

The headlands peninsula was noted by New England author Richard Henry Dana in 1835 in his book “Two Years Before the Mast.” The city was named after Dana when it was subdivided in the 1920s.

The approved plan for the Headlands is the subject of two heated citywide November ballot measures that could force the council to rescind its approval of the project.

Conservancy official Nelson said he met this week with aides for three South County legislators--Assemblyman William Morrow (R-Oceanside), state Sen. William Craven (R-Oceanside) and state Sen. Marian Bergeson (R-Newport Beach)--to outline the group’s effort to obtain the property.

Nelson and Cain said that because the headlands property contains habitat for endangered species such as the cactus wren and California gnatcatcher, federal funds are available to help buy the land. A citywide bond issue could be another potential source of purchase money, they said.

Nelson said there are no exact figures for the purchase, and little money has been raised so far. But the conservancy believes “we need to be able to generate $40 million to $50 million,” he said.

Money aside, conservancy officials said there are two keys to achieving a compromise: The property must be affordable and the City Council must accept the plan even though the 400-room luxury hotel would not be built. Conservancy officials say the council, with its eyes on the potential $2-million annual bed tax revenue the hotel would generate, is the driving force behind the hotel portion of the project, not the landowners.

“This was something the council wanted and something the resident supporters of the project were touting as the main benefit of this project,” said Councilman William L. Ossenmacher, an opponent of the proposed development.

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Councilwoman Karen Lloreda, one of the project’s supporters, agreed.

“As a council person, one of my concerns has always been and continues to be revenues to the city,” Lloreda said. “I don’t have a problem with a scaled-down version of the hotel, but I believe there is valuable revenue available to the city from this headlands project and I would hate to see that disappear.”

Lloreda added that the California Coastal Commission has insisted in the past that coastal development projects include facilities--such as hotels--that can be used by the general public. Simply providing open space has not been enough, she said.

But Lloreda also said she believes there is still plenty of room for compromise.

“There are three issues here: the property owners’ needs, the city’s needs and the people’s needs,” she said. “Perhaps the developer is going to have to give up a little bit of the housing (element of the plan). There is room for everybody to compromise here.”

Headlands Talks The Dana Point Headlands Conservacy is exploring the purchase of a prime portion of the 121-acre headlands property-currently marked for a 400-room luxury hotel, residential and commercial development. The deal would include an initial nine-acre plot with an option for 12 more acres.