April 28th, 2010
Two units of J.F. Shea Co. say they want to back out of a deal to develop an 820-acre parcel at the former Tustin Marine air base, saying that falling land values make it impossible to build homes, shops, offices and a hotel in today’s economy.
Shea maintains that land once valued at $236 million is now valued near zero, one city official said.
Tustin Legacy Community Partners (TLCP), consisting of Shea Properties and Shea Homes, agreed in 2006 to pay $236 million for the project, plus install infrastructure such as roads, sewer and water systems and parks in exchange for 160 developable acres in the heart of Tustin.
But Shea Properties President Colm Macken said that home and commercial values have sunk so low that it’s not worth going forward with the project unless the city of Tustin makes concessions it’s not willing to make.
For one thing, the city wants Shea to install $250 million worth of infrastructure by 2013. Shea believes, however, that property values won’t be back to 2006 levels until 2016, he said.
“Unfortunately at this time, the TLCP can’t deliver what the city wants, which is a lot of infrastructure in advance of the market. I think it’s fair to say the project is a casualty of the economy.”
The development is the biggest project at the 1,600-acre air base. Plans included 2,105 housing units, up to 6.7 million square feet of office, retail and inudstrial space and a 500-room hotel. Development is to be built around a two-mile-long linear park.
The first blow to the project came in April 2007 when an earlier partner, Centex Corp., backed out of the partnership.
Macken declined to comment on a report by Martin Brower’s Orange County Report, a monthly real estate newsletter, that Centex wrote off nearly $20 million when it quit the project and that Shea stands to lose about $85 million.
In December, the Orange County Assessor’s Office reported that the assessed value of the project’s land fell by $251 million to $85 million — in part because the original assessment included undevelopable land, but also because of falling values.
Shea’s position is that the only way it could proceed is if the land — once valued at $236 million — now be valued near zero, according to Tustin Assistant City Manager Christine Shingleton.
“I don’t think under any circumstance we could put ourselves in that position or in any way value the property at or near zero. … They expected the city pretty much to subsidize the infrastructure and give them the land. … Our city sees this property as an asset.”
Shingleton said negotiations to get the stalled development back on track have been going on for the past 18 months. Shea “defaulted” on many of its obligations, she said, including requirements to install infrastructure by 2009, develop plans and make a $152 million land payment by September.
The city extended deadlines for Shea to meet some obligations under a “forebearance” agreement, since expired, and is now seeking to get infrastructure completed by 2013.
Both Macken and Shingleton said they are seeking to end the firm’s development agreement without litigation.
Shingleton declined to discuss what options the city is likely to pursue if Shea withdraws as “master developer.” But she said all options are possible, including hiring a new master developer, breaking the project up into smaller developments with multiple developers or the city acting as master developer.
The City Council likely will be asked to vote on Shea’s request to withdraw in 30 to 45 days, Shingleton said.