Tustin base project called worthless – some Tustin legacy

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.

Said Macken:

“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.

Shingleton said:

“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.

http://lansner.freedomblogging.com/2010/04/28/tustin-base-project-called-worthless/63835/

Clifford Polston, former head of the Boys & Girls Clubs of Tustin, was sentenced today to probation and community service

Editorial –

This Loser who we Refer to as Mr. Kiddie actually Lives in Our Neighborhood Across the Street and a Couple of Houses Down – for a Convicted Felon He Sure Seems to have Plenty of Money – New Cars and Trucks – Endless Home Improvements – Kind of Lives Like He’s Under House Arrest – and Looks Bored.

No More Vegas Trips with Money He Took from the Kids – Bummer – Mr. Kiddie. We Think that He May Have Stashed Some Money that he Stole from the Tustin Boys and Girls Club in His Backyard or Something.

Then there’s the “Clueless” Wife – “more than $75,000 of the money went toward a phantom salary for his wife, Elsie, a teacher at Pioneer Middle School” –  Polston would endorse and cash her paychecks.

It’s All Just So Pathetic and Reminds Me A lot of Disgraced Preacher Jim Bakker and Tammy Faye Bakker.  LOL

http://www.newsweek.com/2016/04/08/televangelist-jim-bakker-back-440991.html –

Tustin, California –

For years, Clifford Polston used the Boys & Girls Clubs of Tustin as his personal piggy bank.

He would charge the club he ran for 30 years for trips to Vegas and to Pechanga Casino, high-speed Internet at his home, countless meals, and gasoline as well as toll-road fees.

Clifford Polston, former head of the Boys and Girls Clubs of Tustin, was sentenced to 3 years of probation in Orange County Superior Court.

One time, while Polston was vacationing in Tahiti, he had the club pick up his airport parking tab.

As its longtime chief professional officer, Polston was trusted implicitly by the board.

“Mr. Polston literally had the keys to the candy store,” a Tustin Police Department report says.

Once considered a pillar of the community, Polston, 60, admitted to fleecing the Boys and Girls Clubs of Tustin of $114,354 between July 2001 and June 2007.

More than $75,000 of the money went toward a phantom salary for his wife, Elsie, a teacher at Pioneer Middle School. Polston would endorse and cash her paychecks.

His sentencing Monday, to three years of formal probation, 200 hours of community service, and $260 in fees, has some former colleagues feeling he got off lightly.

“I, like others, think he should have gotten some jail time,” said Bill Kliss, a board member of the Boys & Girls Clubs. “I thought for what he did, he deserved it. When you think of what he was doing, he was taking advantage of disadvantaged children, and that’s terrible.”

Kliss believes a year behind bars was called for, as does Gary Green, chief volunteer officer the Boys & Girls Clubs.

“He would have gotten the message,” Green said.

Even Judge Erick L. Larsh, who handed down the sentence, said he believed the crime called for prison time. But Larsh still signed off on the plea agreement.

Polston could not be reached for comment.

POLSTON’S HAPPY

His attorney, Gregory Bartone, said Polston’s previously clean record and years of community involvement were factors.

“From a defense perspective, this was a great outcome,” Bartone said. “He’s very happy he’s not going to prison. He thinks it’s a fair resolution.”

Bartone said Polston is paying greatly for his crime.

“He has three years of probation,” Bartone noted. “If he makes one slip-up, he’s toast.”

“He’s also kind of a social pariah now.”

Recent cases involving embezzlement show a range of penalties.

A former financial officer at the Orangewood Children’s Foundation recently pleaded guilty to stealing $780,000 from the group and was sentenced to 12 years in prison and more than $1,150,000 in restitution.

A former PTA treasurer in Placentia was sentenced in August to 3 years of probation, 60 days in jail, and paying restitution for stealing $11,424 from the Melrose Elementary School PTA.

CHANGED PLEA

Polston originally pleaded not guilty, in July, to 27 counts of forgery, three counts of grand theft and one count of false entries in records or returns.

In November, in a plea agreement worked out with the District Attorney’s office, Polston pleaded guilty to a single count of grand theft, along with a sentencing enhancement for taking funds exceeding $50,000.

Polston’s guilty plea could have resulted in a maximum of four years in prison.

It is rare for judges to reject plea agreements. One recent notable exception involved the federal case against Broadcom co-founder Henry Samueli for his role in an alleged stock-option scam.

Susan Schroeder, a spokeswoman for the Orange County District Attorney’s office, said one of the considerations was making sure that the Boys & Girls Clubs got its money back as soon as possible.

Factoring in interest, Polston owed the Boys & Girls Clubs about $140,000 – almost the same amount that had accumulated in a life insurance fund the club purchased for him years ago.

Polston agreed to sign over those funds to the club.

“We really respect the wishes of the victims,” Schroeder said. “And in this case, the victim’s primary goal was to make sure the money went back to help the children as soon as possible.”

“We wanted some money to come out of his pocket, and that didn’t happen,” Kliss said. “But we’re happy with what we’ve got.”

CLUB STILL OUT $60,000

The Boys & Girls Clubs, however, still is out about $60,000, according to Green.

About $50,000 went to attorney’s fees to defend a civil lawsuit filed by Polston after he abruptly resigned as chief professional officer in 2007, after the board confronted him about suspicious financial transactions.

Polston sued the club to receive the life insurance funds, as well as for alleged unreimbursed sick time. The board countersued. The civil actions died when Polston agree to plead guilty.

The added $10,000 was for a forensic accountant who unearthed the embezzlement scheme. The probe only went back to 2001, because the club did not have the funds to dig further, Green said.

According to the Tustin police report, “The amount could be substantially more if one were to go back further in time.”

Green said the theft hurt the club’s reputation and finances, but that the club, whose annual budget is just over $1 million, is doing well. He and other board directors have reached out to donors to assure them their money is going where it should.

“This club is now buttoned-up tight,” Kliss said of new financial controls.

Added Kliss: “I thought the DA did a good job – I just wish the penalty had been a bit stronger.

“I think the message to other (charitable) organizations should be, ‘Hey, you’re going to have to pay for this crime.'”

Register staff writer Larry Welborn contributed to this story.

http://www.ocregister.com/news/polston-222585-club-years.html

Some Tustin Legacy – Dallas-based home builder Centex Corp. – an original partner in the Legacy Park project pulled out in 2007

November, 2009

Legacy Park Developer Pushes To Rework Agreement with Tustin.

The developer of Tustin’s Legacy Park project hopes to rework terms with city officials anxious to see construction resume at the massive project.

For now, Aliso Viejo-based Shea Properties has entered into a pact with the city to head off a foreclosure threat by Tustin – a tactical move designed to spur a resumption of development at the project.

Executives from Shea Properties say they remain committed to finishing the 820-acre redevelopment at the city’s former Marine base with homes, shops, offices and hotels.

But they say they need more time amid the worst real estate downturn in the county since the early 1990s.

“We are heavily invested in the project, (but) the facts are that the pace of development at Tustin will have to follow the pace of growth of Orange County’s economy,” said CoIm Macken, chief executive for Shea Properties.

Shea Properties and Shea Homes, both part of Walnut’s J.F. Shea Co., are handling development of Legacy Park with the city of Tustin.

A lack of work on the former base amid the real estate downturn has prompted speculation in recent weeks that the entire project could be in trouble.

Dallas-based homebuilder Centex Corp., An original partner in the Legacy Park project pulled out in 2007.

Officials from the city and Shea Properties dismissed talk that Shea plans to walk away from the megaproject. They said talks are under way about a possible reworking of a development agreement for the project.

More Time Sought

Changes to the original plan are needed to reflect the reality of the current market, Macken said.

Given the current state of the local economy, it could take at least three or four years before the commercial real estate market here turns around, he said.

The company said it is in talks with Tustin over the structure of its development agreement for Legacy Park, first signed in 2006. Macken declined to specify what changes could be sought.

Industry sources expect Shea to seek a new plan similar to what neighboring Irvine approved as an amended development and implementation plan for the former El Toro Marine base, which gave the developer there a little breathing room.

Miami-based Heritage Fields El Toro LLC committed to a plan that will give the city anoth- I er 130 acres of land and ^ will see $100 million I spent at the site of Irvine’s Great Park during the next five years, while the developers of the 3,700-acre project wait for signs of a market rebound.

Whether Tustin would be amenable to similar changes remains to be seen.

“The city’s position is that this is a (great) asset, and the city doesn’t want to see those assets devalued,” said Christine Shingleton, Tustin ‘s assistant city manager.

Legacy Park – part of the 1,580-acre redevelopment of the former Marine helicopter base – calls for 2,105 homes and 6.7 million square feet of commercial space, along with about 170 acres of parks and open space.

In early 2008, it was hoped that some construction could begin this year. But that was before the commercial real estate market went into a freefall. Those plans have been indefinitely delayed.

That lack of activity, particularly for roads and other early work, has caused some concern within the city of Tustin. Officials there made moves this summer to try to force Shea Properties to move ahead on the development.

Notices of default items were filed against the partnership overseeing Legacy Park, according to city officials.

City officials said Tustin recently entered into a forbearance agreement with the Legacy Park partnership, following the notices of default.

A forbearance agreement typically is used by a lender to postpone a foreclosure to give a borrower more time to make up an overdue payment, or, in Shea’s case, meet terms under the development agreement.

The forbearance agreement runs through the end of September, city officials said.

Specifics of the agreement weren’t disclosed. Most of the issues tied to the default items are performance-related, rather than financial issues, according to Shingleton.

Hotel Plans

The last big news coming from Legacy Park was in early 2008, when development plans were announced for a trio of hotels, totaling 480 rooms.

Irvine-based R. D. Olson Development signed on to build and own the three hotels, which included plans for OC ‘s first Kimpton boutique hotel, as well as a Hilton Garden Inn and a Home wood Suites by Hilton Hospitality Inc.

Robert Olson, chief executive of the hotel developer, said last week that he expects the project to move ahead.

“I still like the market, and I still like Shea’s plan,” Olson said.

The original plan for the hotels was for construction to break ground this year. The project was set to be completed by the end of 2010.

Now Olson said he hopes the project could be done by 2012.

“It’s going to be delayed. The question is what shape and form (the development) will be” when the market returns, Olson said.

As of mid-2008, Shea had spent about $60 million on Legacy Park. Officials at the time said that about $800 million worth of road and sewer work eventually would be done at Legacy Park.

When completed, Legacy Park should have an assessed value of nearly $3.5 billion, officials said at the time.

Brokers looking to find tenants for planned commercial space at Legacy Park said last week that it’s still business as usual.

“We’re still marketing,” said Eric Hinkelman, senior managing director for Cushman & Wakefield Inc.’s OC office.

Cushman was tapped by Shea about two years ago to handle office leasing for Legacy Park. Some 6 million square feet of office space is planned at Legacy Park.

The first offices set to be built there are at the Shea Technology Campus, where about 340,000 square feet of two- and three-story buildings are planned near Warner and Red hill avenues.

To date, no leases have been signed for the project – not surprising considering the slow state of leasing for existing offices in the past few years, let alone proposed developments.

There’s been no indication from Shea that any development plans have been scrapped, according to Hinkelman.

http://tustinlegacy.spaces.live.com/blog/cns!CB049C080383674!208.entry

Copyright CBJ, L. P. Aug 31-Sep 6, 2009


District at Tustin Legacy

History

The last loan, from the retail sector, is a transitional story. The $206mn District at Tustin Legacy loan is backed by a newly constructed 985k shopping center in Tustin, California. The project was part of the redevelopment of the 1,600 acre former Tustin Marine Corps base.

The center is anchored by Costco and Lowe’s, which are independently owned and not part of the collateral, along with Target, which is on a ground lease, and Whole Foods, which is part of the collateral. The collateral consists of 522k sf, resulting in a loan balance psf of $395. The property is owned by Vestar and Kimco, a major shopping mall REIT. The 6.9%, 10y interest-only loan was originated in November 2007 and securitized in LBUBS 07-C7. We view this loan as transitional. At securitization, construction at the property had not yet been completed. As of November 2007, only 82% of the space was occupied, despite leases signed for 99% of space. An upfront reserve was established with a balance of $540k.

The transitional nature of the property was likely a factor in the higher loan coupon; we estimate that the relative loan SATO was +55bp. (Loan SATO stands for spread at origination, and is adjusted for comparably issued loans made at the same time. A number > zero suggests a higher-than-average loan spread and higher perceived risk from the issuer standpoint.) The borrower stated that the property would stabilize in 1H08.

Also, the loan terms are unique in that they suggest a partnership with the City of Tustin. The city must approve any lease of space over 20K sf and receives 25% of all percentage rents payable to the borrower. The sponsors invested a significant amount in infrastructure improvement in the area around the site.

Current snapshot

The property has yet to stabilize, due to delayed store openings and lower-than-expected rents. The completion of the project coincided with a severe housing bust in the region. MSA level unemployment touched 11.9% in September, well above the national average, as a large portion of employment was tied to housing. High unemployment and falling property values have contributed to weak retail spending and net absorption in Orange County (Figure 8).

The 2008 NOI for District at Tustin Legacy came in at $13.1mn, versus a budgeted amount of $16.8mn. This was due to a decline in average rent to $20.7 psf, versus $26.2 psf at underwriting. Mid-year financials suggest a similar result for 2009, and the most recent DSCR was 0.86x. The loan has been on the servicer watch list since November 2008, and the upfront reserve has been depleted. On the positive side, occupancy has rebounded to 99% as of June 2009, but we suspect that rent concessions have risen as well.

http://wealth.net/2009/11/five-cmbs-case-studies/