SOUTH BAY / COVER STORY : Mall Chronicles : Cleanup Cost, Questionable Business Deals Are Among Woes Plaguing Site for Huge Complex

Once again, the developers are back in Carson, throwing Christmas parties with cocktails, cake and a five-piece band, and tantalizing city officials with the prospect of tax windfalls and new jobs.

Their project is the proposed L.A. Metromall, which would be one of the largest enclosed factory outlet centers in the country. Not only would it mean thousands of new jobs and sales tax revenue for Carson, but the developer also promised to see to it that the site--a vacant 157-acre parcel that was once a hazardous waste dump--is cleaned up once and for all.

After the guests queued up for the buffet, one partner walked over and slapped Mayor Michael I. Mitoma on the back.

“If it wasn’t for you, we wouldn’t be here,” project consultant Robert Sonnenblick told him.

But Mitoma and other city officials have heard this before. In fact, the developers threw Christmas parties just like this one in 1992 and 1993. And despite the celebrations, the site is still a mound of dirt covered with weeds.

For more than 25 years, prospective investors have been tempted with ideas for developing the choice location at the convergence of the San Diego (405) and Harbor (110) freeways. All the plans have failed.

The difference this time is that the city, through its redevelopment agency, has made a substantial commitment to the project, which supporters predict could bring a windfall in sales taxes for the city. But some residents and city officials are skeptical, given a recent series of delays in the project.

And some critics have warned that Carson is opening itself up to legal liability. The city will form a special district to sell $62 million in bonds for cleanup costs and other improvements such as storm drains and sewer lines. If the project fails, bondholders might sue the city for its role in the project, detractors say.

The former dump site contains more than 1.2 million gallons of liquid hazardous waste, according to state officials, and the developer plans to spend $39 million to clean it up. Opponents fear Commercial Realty Projects, the investment group that has proposed the mall, will not have the resources to clean up the site because the full extent of the contamination is unknown.

“I don’t think in 10 years and $100 million they would be able to clean up that land,” said Kathy Hosa, 78, who lives in a nearby mobile home park.

And although the project is backed by a union pension plan, some residents and city officials are wary of some of those working on the development, because Metromall consultants Robert A. Ferrante and Peter Sardagna were involved in the costly failure of an Orange County savings and loan in the 1980s. Ferrante, pursued by federal authorities in criminal courts but never convicted, has been trying to develop the site for 10 years.

“Why is the city of Carson getting involved with these people?” said former City Councilwoman Sylvia Muise, who left the council last year.

The project got a jump start in 1993, when the City Council voted 3 to 1, with Muise abstaining, for an agreement with the developers. The plan calls for the city to form a special district to float $62 million in bonds, which will be paid back with a portion of the sales and property taxes generated by the new mall, as well as special fees paid by the mall owner or tenants. In addition, the city will chip in $18 million to build new roads and freeway ramps.

Mitoma, who voted for the project along with Councilman Peter Fajardo and Councilwoman Kay Calas, said the potential payoff from the project would be too good to pass up. Over a 30-year period, the city stands to collect almost $100 million in sales taxes, according to a consultant’s report paid for by the city.

A spokesman for Commercial Realty Projects calls the 1.2-million-square-foot mall a “one-of-a-kind” project that will dwarf the only other factory outlet center in the Los Angeles basin, the Citadel in Commerce.

“This is the most important thing this city is going to see in a generation,” said William Seay, administrator of the Southern California/Arizona Glaziers, Architectural Metal & Glass Workers Pension Plan, which is financing the project.

Fueled by consumer demand for discounts, such centers have enjoyed dramatic growth in the 1990s, even while traditional malls like Del Amo Fashion Center have seen sales decline. At the outlet malls, retailers like The Gap and Levi, Strauss & Co. sell merchandise at great discounts, often because it is discontinued or out of season.

Project backers predict that the $39-million cleanup will be done and the $125-million mall will be built 18 months after ground is broken this summer.

“There’s only one moment of truth,” Murray Kane, the attorney for the project, said. “That’s when ground is broken and the project moves forward.”

The project would be dead except for the complex deal that the city worked out with the developers in late 1993, just days before a new state law took effect that restricts such arrangements. The new law prohibits cities from sharing sales taxes with developers. The city’s redevelopment agency rushed to file legal paperwork before the law changed.

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All of the plans, however, will be thwarted if the developers do not have a hazardous waste cleanup plan that has been approved by the state Department of Toxic Substances Control. State environmental authorities would also have to agree to limit Commercial Realty Projects’ cleanup obligation to $39 million. The land is contaminated with heavy metals and solvents, oil-drilling mud and tank-bottom residue, as well as pesticides and herbicides.

Should the project fail, it would be bondholders who could foreclose on the property, not the city, said Kane, the project’s attorney.

“There’s no way the city will be stuck with the site,” Mitoma said. “And we’re not going to be selling the bonds. If (the developers) don’t sell them, the project is dead.”

But Martin McHale, a resident who lives nearby, charges that the city’s agreement for the Metromall was “rushed to judgment.” He said that city officials should have spent more time going over the agreement, given that the property has such a checkered history of false starts.

“They’ve never been able to do anything with that spot of land,” McHale said.

Over the years there have been a series of ill-fated proposals for the property, including mobile home parks, auto dealerships, a stadium for the Rams and another for the Raiders.

The property has also been mired in legal entanglements and questionable business practices. In 1986, Councilman Walter (Jake) Egan went to prison for nine months after he was convicted on charges he demanded money in return for voting in favor of Orange County fireworks magnate W. Patrick Moriarty’s plan to build a mobile home park on the land.

The current plan for a giant mall complex has its roots in a mid-1980s plan to construct an office and industrial park, called World Industrial Center, at the site.

When World Industrial’s owner defaulted, the project ended up in the hands of Robert A. Ferrante, an Orange County developer and owner of Consolidated Savings Bank in Irvine.

In 1986, federal regulators seized Consolidated, blaming its failure in part on bad loans to the Carson project. The property was mired in bankruptcy proceedings, as federal regulators sought to recover the $30-million cost of bailing out Consolidated.

Ferrante had been trying to sell the property as part of a bankruptcy reorganization plan when he and an associate at Consolidated, Peter Sardagna, were indicted in 1991 on charges that they made insider loans at Consolidated. They were later acquitted.

Another snag for the development came in late 1993, when Ferrante and Sardagna both declared personal bankruptcy.

It was only in October, in fact, that the Federal Deposit Insurance Corp. sold notes on the property for $5 million to Commercial Realty Projects, the pension fund investment group. The group plans to foreclose on the site and take title in February.

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Ferrante and Sardagna, meanwhile, still have close ties to the project. In 1994, the Resolution Trust Corp. said that Ferrante was being paid $30,000 per month to consult the pension plan on the Carson project and other real estate ventures. And in filings with the Internal Revenue Service, the pension plan reported that Sardagna was paid $240,000 as a consultant in 1992.

That they are still linked to the project was a factor in former Councilman Muise’s refusal to vote for the mall.

“I’m not against the project,” said Muise. “I’m against the people doing it.”

Mayor Mitoma initially had doubts too.

“The glaziers union was brought into the project by Ferrante and his group, and I don’t feel comfortable with this ‘Trust Me’ business” by the union pension plan, he said in 1991, shortly after Ferrante and Sardagna were indicted. “My concern is that Ferrante et al are in the background still managing this project.”

Indeed, Seay, the administrator for the pension plan, was at one time a limited partner with Ferrante in the World Industrial Center project in the mid-1980s.

A year ago, some city officials warned council members of the risks before the agreement was signed. In a memorandum sent to council members in late 1993, City Atty. Glenn R. Watson questioned why the glaziers union pension plan would not agree to step in to save the project if the current developer goes bankrupt.

“They have told me they will not guarantee anything,” Watson said.

Sale of bonds to pay for cleanup of the site and other improvements to the property have been delayed because the Metromall does not have a cleanup plan.

As things now stand, BKK Corp., the successor to a company that once operated the dump, and other companies that discarded waste at the site are under a state order to pay for cleaning up the landfill.

The question now is what role Metromall’s developers will have as owners of the site. As part of their approval to construct the mall, Metromall officials have proposed sharing the costs. The mall would pay to clean up the contaminated soil, while BKK and other companies would be responsible for the ground water aquifers. State environmental officials have not approved the proposal.

Mitoma says that he has gained more confidence in the project. Before the city signed the agreement with the developers in 1993, city officials checked out the resources of the glaziers union pension plan to make sure that it had the money to back up the partnership.

“From what we can determine, they have never lost money,” Mitoma said. “The city is looking at this strictly as a business transaction, and is limiting its liability.”

Said Peter Fajardo, another supporter on the council: “I am more confident now because the most recent information is that the ownership issue has finally been resolved.”

Developers insist that the city will not be held liable should the project fail. Before the bonds are sold to pay for preparation of the site, the developers have to submit proof that they will also have commitments to finance construction of the mall itself. Even then, there are provisions in the development agreement to keep the city at arm’s length from the ownership of the project.

“The city has gone to great lengths to ensure that . . . it is not in the chain of the title,” said Kane, the project attorney. “The entire project has been structured for the city to avoid any liability.”

Bear Stearns & Co. and Westhoff-Martin & Associates, two financial underwriting firms, will underwrite the bonds, making sure that they are marketable.

Kane predicts a strong market for the bonds because they will be secured by the property.

“There is a booming market for tax-exempt bonds,” Kane said. “These will be secured investments.”

Birtcher Construction Ltd., one of the project’s general contractors, has built several outlet malls before, and the developers have already paid Birtcher about $500,000 for designs of the sprawling complex.

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The proof could be in who has stayed with the troublesome site. Commercial Realty Projects has invested about $20 million already in the venture, Sardagna said.

He calls his and Ferrante’s financial backgrounds “irrelevant” to their work on the project.

And Robert Sonnenblick, who is directing leasing and marketing for the mall, said that the project “shouldn’t pay a penalty” for Ferrante’s and Sardagna’s battles with federal regulators.

Their indictments were “another example of overzealous attorneys who were put in their place by the legal system very quickly,” he said.

Their colleagues on the project credit them with getting the pension plan investment group to finance the project and take responsibility for the cleanup.

“There’s such a sordid past with this piece of property and the guys who have owned it, it’s unreal,” said Andrew Youngquist, the president of Birtcher Construction. “To (Ferrante’s) credit, he figured it out. He made it work.”

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A Field of Dreams Many people have had elaborate visions for the former hazardous waste dump site near the intersection of the Harbor and San Diego freeways, only to go bust. A look at some of the attempts to make a centerpiece for Carson since the landfill was closed in 1965. 1978: Carson officials propose a football stadium for the Los Angeles Rams.

1979: Group including Los Angeles businessmen Alex Deutsch and Arthur Gilbert and actor Kirk Douglas buys the site.

1980: Casa Del Amo Estates leases site for 99 years and proposes a mobile home park.

Spring, 1982: Land rezoned commercial and industrial.

Fall, 1982: Casa Del Amo Estates proposes building offices, hotels, restaurants and light industry.

1984: Would-be buyer Jorge J. Yavar plans a $750 million complex of offices, high-rise hotels, retail outlets and high-technology businesses.

1985: World Industrial Center buys property and proposes an office and industrial development.

1986: Regulators seize Consolidated Savings, owned by Robert A. Ferrante. Its biggest asset is World Industrial Center, which owns the Carson land.

1986: Carson Councilman Walter (Jake) Egan is convicted on charges that he demanded money from a developer in exchange for a vote.

1987: City officials propose a 70,000-seat stadium for the Los Angeles Raiders.

1989: Carson Realty Projects, an investment group recruited by Ferrante, proposes an outlet mall.

1990: Ferrante and Consolidated Savings & Loan associate Peter Sardagna settle a civil suit with the Federal Deposit Insurance Corp. Among the provisions is that the FDIC would get $22 million from the development of the mall.

1991: Ferrante and Sardagna are indicted for allegedly defrauding Consolidated Savings & Loan of $13.5 million by making insider loans to family and friends.

1992: Ferrante and Sardagna are acquitted.

Dec. 13, 1993: Ferrante and Sardagna file Chapter 7 bankruptcy liquidation.

Dec. 21, 1993: Carson officials approve a redevelopment agreement with Carson Realty Projects, including plans to float $62 million in bonds that would be repaid in part with sales taxes generated by the mall.

1994: Carson Realty Projects, also known as Commercial Realty Projects, obtains control of the land by buying three notes for $5 million. Jan. 1, 1994: New state law prohibits sales taxes from being used to retire bond debt.