April 18, 2011

SunCal Back in Game on Auction, Army Deal

Irvine-based master developer SunCal Cos. suddenly has the makings of a growth push after several years in legal limbo.

The company, one of California’s most aggressive land buyers during the real estate boom, earlier this month got the lead role in a 180-acre redevelopment at a former Army Reserve base in the Bay Area.

It also reclaimed control of three California mega projects that have been in bankruptcy protection for more than two years.

If the latest proposal by SunCal’s lawyers makes it through an increasingly convoluted bankruptcy process, the developer also could find itself directing the reorganization – and regaining ownership – of several other stalled projects.

One of those is San Clemente’s Marblehead Coastal development.

“They’re definitely going after land again,” said Terry Ruckle, founding principal at Land Advisors Organization, a land brokerage with offices in Irvine.

A SunCal-backed venture emerged as the surprise winner in a recent court-overseen auction of three stalled properties: the McAllister Ranch project near Bakersfield and the McSweeny Farms and Summerwind Ranch developments in Riverside County.

The three projects total more than 5,000 acres and have the potential for more than 11,000 homes.

SunCal was the initial developer for the properties, which have been operating under bankruptcy protection since 2008.

Lehman

They originally were financed by New York’s Lehman Brothers Holdings Inc., which filed for bankruptcy in 2008 and lives on only in bankruptcy court.

The three California projects had more than $300 million in debt tied to them at the time of their individual bankruptcy filings, according to court documents.

The three projects are being handled separately from the bulk of SunCal’s other bankrupt properties in Southern California, including Marblehead.

SunCal, which hasn’t declared bankruptcy itself, won back the three properties with a $71 million bid at auction.

That was $1 million more than the maximum credit bid allowed for existing debt-holders – including Lehman – according to Land Advisors’ Ruckle, who marketed the projects for sale along with Los Angeles-based Madison Partners.

The deal valued McAllister Ranch at $22 million and McSweeney Farms at $15.5 million. Summerwind Ranch, the largest project of the three at 2,591 acres and designed to hold 3,683 homes, was valued at $33.5 million in the sale, according to court filings.

The winning bid was “a good price, and a fair price,” Ruckle said.

Competing bids came from private investors, hedge funds, large master developers and agricultural businesses interested in farmlands, he said.

SunCal’s bid was submitted under the PVCO Land Holdings LLC name. The company’s financial backers in the deal haven’t been disclosed.

It’s not known whether D.E. Shaw & Co., which along with Lehman has been one of SunCal’s biggest financial backers over the years, is involved in the deal.

The sale of the three properties is slated to officially close in May, according to Ruckle. An affiliate of Lehman that represents first lien holders in the case said in court filings it doesn’t object to the winning bid.

SunCal’s also picking up other land.

Earlier this month, the Army announced a pact to turn over to SunCal about 180 acres – or nearly 8% – of the Bay Area’s Camp Parks Reserve Forces Training Area in Dublin.

SunCal plans to turn the land into Dublin Crossing, a development that would include some 1,500 homes along with parks and several hundred thousand square feet of shops, offices and hotels.

The planning process for the land could take up to 18 months, according to local reports.

In return for the land, SunCal will build more than $80 million in facilities at Camp Parks and upgrade other infrastructure on the rest of the base, which originally was built in the 1940s.

The land will be handed over in five phases. It’s said to be the largest land exchange in the history of the Army Reserve.

SunCal, led by Chief Executive Bruce Elieff, still has its work cut out to reclaim any other properties that it once ran and which now are under bankruptcy protection. That includes the 247-acre Marblehead project, which overlooks the ocean in San Clemente.

Marblehead

In filings made this month in bankruptcy court in Santa Ana, SunCal detailed its latest plan of reorganization for more than 15 Southern California projects still in bankruptcy.

In the case of Marblehead, where 308 high-end homes and shops are planned, SunCal is relying on a proposal that includes “reliance creditors.”

Those are unsecured creditors who could see their chances of collecting what they’re owed improve if litigation against Lehman proves successful.

The proposal also would give reliance creditors the option of selling their claims to a SunCal affiliate for 55 cents on the dollar.

That partial recovery isn’t contingent on the sale of the properties to a third party, according to SunCal’s latest plan.

There’s more than $200 million of reliance claims tied to Marblehead, according to court documents.

Among them is one by the city of San Clemente, which is owed nearly $40 million.

SunCal’s latest reorganization plan is certain to face objections from Lehman and its affiliates, which loaned the developer more than $300 million to buy the land in 2005.

Lehman has proposed its own exit plans for Marblehead and the other contested projects and has the backing of a court-appointed bankruptcy trustee for about half of those.

“We think that our plans are superior to the Lehman plans and offer more value to creditors,” Frank Faye, SunCal’s chief operating officer, told Dow Jones’ Daily Bankruptcy Review earlier this month.

THE NEWS:

SunCal wins back control of three major developments in court auction, strikes deal for 108-acre project on land currently part of Bay Area Army Reserve base

BACKGROUND:

Various other projects still under bankruptcy protection, including upscale Marblehead in South Orange County

WHAT’S AHEAD:

SunCal has proposed plan to resume control of Marblehead, other projects, but likely will face legal challenge from onetime financial backer Lehman