Monthly Archive for July, 2010

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Sunstone Walks Away from the W Hotel

July 15, 2010, by Seth Hettena. 0 Comments

Major Foreclosures and Defaults in Downtown San Diego
View Major San Diego Foreclosures in a larger map

When homeowners owe more than their home is worth and walk away, it’s called a “strategic default.” Fannie Mae warned potential strategic defaulters last month that they would never again get another mortgage.

But no one seems bothered that Sunstone Sunstone Hotel Investors Inc. is walking away from a $65 million mortgage on the 258-room W Hotel in downtown San Diego.

The San Diego Union-Tribune’s Lori Weisberg reports that the W Hotel was auctioned on the courthouse steps on June 29. The property is now in the hands of Bank of America, the lender.

Sunstone was underwater on the W Hotel. The Aliso Viejo-based real estate investment trust, concluded that it owed far more than the W Hotel was worth. Sunstone bought the W for $96 million in 2006 from a group led by developer Gatehouse Capital Corp., the Wall Street Journal reported last month.

But Sunstone is coming out ahead. Chief financial officer Ken Cruse crows to the U-T about “a significant gain” on the W San Diego because the hotel was recorded on Sunstone’s books at $35 million.

Thanks, assholes.

Steinbrenner the Felon

July 15, 2010, by Seth Hettena. 0 Comments

Who dropped the dime on Yankees owner George M. Steinbrenner for making illegal campaign contributions to the Nixon campaign?

According to Steinbrenner it was Nixon. Steinbrenner told baseball writer Roger Kahn for his book October Men that he wasn’t really a Republican at all and had been shaken down by the president’s men.

Steinbrenner was buddies with House Speaker Tip O’Neill and Ted Kennedy. He had raised about $2 million for Democrats running for Congress in the Cleveland area. That didn’t sit well with Nixon aides Bob Haldeman and John Erlichmann. “The Nixon people were very annoyed at my Democratic fund-raising,” Steinbrenner told Kahn.

As the 1972 presidential election approached, Nixon’s henchmen demanded dirt on Kennedy and other Democrats from Steinbrenner. “Rough stuff,” Steinbrenner told Kahn, “not only stories about the politicians but about their wives. Drinking. Sex. Very damn distasteful, if you ask me.”

Nixon’s men threatened an antitrust investigation of American Shipbuilding, Steinbrenner’s company, and punitive IRS audits. Steinbrenner decided to buy his way out with campaign contributions to CREEP, Nixon’s reelection campaign. But when he refused to squeal on his Democratic buddies, the Nixon campaign responded with a 14-count indictment in April 1974.

That’s Steinbrenner’s self-serving version anyway. As a prosecutor’s memo makes clear, Steinbrenner had no trouble squealing on Nixon’s people, Teamsters, Merrill Lynch or anyone else who might get him out of trouble.

WSJ’s Latest Lerach Attack

July 15, 2010, by Seth Hettena. 0 Comments

Even though he has been driven from the practice of law, Bill Lerach, whom I recently profiled for Voice of San Diego, remains one of the conservative movement’s leading bogeymen.

Until he was sentenced to prison, Lerach struck fear in the heart of corporate America by extracting costly settlements from the nation’s biggest companies. He recently completed his sentenced and retired to his La Jolla mansion.

Today’s editorial “A Bill Lerach Tax Cut” finds the Journal in a lather over a report that the U.S. Treasury Department planned to give lawyers a tax break over contingency fee lawsuits.

Such a tax break would effectively subsidize the up-front costs of litigation for the the “zillionaire likes of felons Dickie Scruggs, Mel Weiss, and Bill Lerach,” the Journal writes.

These include San Diego firms such as Robbins Geller Rudman & Dowd, Lerach’s old firm, and Robbins Umeda that file shareholder derivative lawsuits and securities class actions. Firms that do this work on contingency, which means they are paid out of a settlement at the conclusion of the case.

The report Wednesday in LegalNewsline.com cited unnamed sources at a meeting of the trial lawyer’s association in Vancouver, Canada.

The Treasury Department declined comment “on speculation about any potential administrative rulings.”

When George Steinbrenner ratted out Merrill Lynch, Teamsters

July 14, 2010, by Seth Hettena. 0 Comments

The obituaries for Yankees owner George Steinbrenner, who died this week at age 80, all refer to his 1974 conviction for illegal campaign contributions to the Nixon campaign and the pardon Steinbrenner received from Ronald Reagan.

Steinbrenner’s defense attorney was the legendary trial lawyer Edward Bennett Williams. Steinbrenner wasn’t impressed. “I paid him $100,000″ Steinbrenner once reportedly said, “and all he did was a cop a plea.”

That’s true, but Williams did the best he could for a client who had dug a mighty deep hole for himself.  The issue wasn’t the illegal contributions, per se. The problem was Steinbrenner, the chief executive of American Shipbuilding, had funneled the contributions through his employees (disguised as “bonuses”) and then instructed them to lie to a grand jury. That’s suborning perjury and people go to jail for it.

According to The Man to See, Evan Thomas’ splendid 1991 biography of Williams, the attorney told prosecutors that Steinbrenner could implicate others in exchange for leniency.

“Steinbrenner could provide us with more than a dozen companies which had been involved in 610 [illegal corporate contribution] violations. … Williams indicated that Merrill Lynch had substantial difficulties in the campaign finance area. …  Williams indicted that Steinbrenner had heard that the Teamsters had given more than a million dollars, that the million dollars had been kept at the Hotel Pierre, and that someone from the Teamsters had stolen it back again,” prosecutor John Koetl wrote following a meeting with Williams on October 18, 1973.

Ultimately, on the obstruction of justice charge, the government allowed Steinbrenner to plead guilty to being an accessory after the fact, a misdemeanor and the sentencing judge let him off with a fine. The commissioner of baseball wasn’t so merciful; he suspended Steinbrenner for two years.

Update: The Smoking Gun beat me to the punch on this one. Here’s a copy of the memo

Vantage Pointe: Who Holds the Note?

July 14, 2010, by Seth Hettena. 0 Comments
Not much to celebrate now

For San Diego, the troubled Vantage Pointe project is a huge deal. The 40-story tower is San Diego’s biggest condo. Construction was financed at a cost of $210 million — the biggest loan of its kind in city history.

Vantage Pointe now sits on the brink of foreclosure. Its loan is in default and most of its nearly 700 units sit empty.

For the lender, Caisse de Depot et Placement Quebec, Canada’s biggest pension fund, Vantage Pointe amounts to about 2 percent of its holdings of foreign real estate.  If you include Canadian real estate, Vantage Pointe is 1 percent of the $19 billion portfolio.

Caisse has reorganized its real estate division in the wake of devastating losses and a $5 billion writedown last year. That has led to a confusing picture about who actually holds the note.

The Vantage Pointe notice of default identifies the lender as CDPQ Mortgage Corp. (since renamed CDPQ Mortgage Investment Corp.)

CDPQ Mortgage is the official name for Otera Capital Inc., Caisse’s commercial real estate lender with $22 billion in assets. (Canadian records list CDPQ’s mailing address as Otera Capital. CDPQ’s directors are Ross Brennan, Michel Deslauriers, and Marie Giguere are all managers of Otera Capital.)

Caisse’s agent on the deal was MCAP Inc., which manages the pension’s real estate debt.

Caisse has financed other major projects in San Diego. According to its 2009 annual report, the Canadian pension financed 820 W. Ash St. and Caisse holds a stake in a real estate investment trust with properties in San Diego. At one time it co-owned the First National Bank Center at at 4th & A streets, which sold in 2003 for $112 million.

Vantage Pointe: Quebec’s Folly

July 12, 2010, by Seth Hettena. 0 Comments
Vantage Pointe

Kelly Bennett at Voice of San Diego has another interesting story today on Vantage Point, the massive downtown condo complex that’s on the verge of foreclosure.

The 40-story Vantage Pointe, downtown’s biggest condo building, is stuck with 679 units that it can’t sell.

Developers are on the hook for a $210 million loan — the largest construction loan on a single residential building in San Diego history. Lenders filed a notice of default in March with a loan balance of $197.8 million.

Writes Bennett:

Now the building’s being handled like a giant hot potato. While the rest of the downtown market shows signs of stabilizing, no one has yet found a way to make Vantage Pointe profitable enough. The developers have been trying for a couple of months to find a buyer for the whole project or to become a partner. But the bank separately stuck up its own for-sale sign seeking buyers for the mortgage.

The developer is Pointe of View, a Calgary-based company, which formed a California partnership, Pointe at Balboa LP, to build this colossus.

The money for the project came from Caisse de Depot et Placement Quebec, Canada’s biggest pension fund, with $130 billion in assets. In 2008, la Caisse posted a $40 billion (!) loss, due in part to devastating losses on its U.S. real estate portfolio.

Fannie Mae Has It Right on PACE

July 11, 2010, by Seth Hettena. 0 Comments

A decision by Fannie Mae and Freddie Mac to say no to a White House-backed solar energy program has a lot of people in California pretty upset. As much as I like solar power, I have to agree the regulators got this one right.

San Diego County Supervisors Pam Slater-Price and Dianne Jacob pleaded with President Obama and the region’s congressional delegation to save the program and called the Federal Housing Finance Agency’s statement on the matter “insulting.” Gov. Schwarzenegger was disappointed. California Sen. Barbara Boxer, NYC Mayor Mike Bloomberg and many others deluged the administration with letters.

The solar-financing  program, known as “property assessed clean energy program” or PACE would have allowed homeowners in 13 San Diego County cities and unincorporated areas to write off the high up-front cost of solar panels — typically $25,000 or more — over 20 years.

The nascent program was dealt a major setback last week when the federal regulator overseeing Freddie Mac and Fannie Mae said that the federal mortgage giants will not buy or sell mortgages on homes enrolled in the program.

The Federal Housing Finance Agency said in a statement Tuesday that the liens created by the PACE program were senior to existing mortgages. FHFA said first liens “present significant risk to lenders .. and are not essential for successful programs to spur energy conservation.”

The second part of the statement is the one Jacob and Slater-Price found insulting. The first part of the statement — that first liens present significant risks — happens to be true.

San Diego County’s program was administered through the CaliforniaFIRST program. Here’s a sample Pace Agreement.

Homeowners who sign up for CaliforniaFIRST have a “contractual assessment lien” placed on each participating property covering the cost of installation plus interest.

A $25,000 solar panel retrofit would wind up costing $40,000 at 5% over 20 years. Assuming you pay $100 a month in electricity like I do, you wouldn’t save enough power to make it worthwhile.

The lien would be paid through property taxes, and liens would be bundled together and sold to investors as bonds. Communities often issue special tax assessments to cover the cost of infrastructure repairs or improvements, but PACE assessments uniquely cover improvements to a single residence.

For would-be buyers, a problem is that the lien follows the house, not the owner. It would have remained on the property even if the owner sold it.

But the real problem lies in the liens’ “super senior” status, which means it takes precedence over all other debts, including mortgages. So you could lose your house if you can’t or won’t pay. Take a look at this clause in the CaliforniaFIRST agreement.

The Property Owner acknowledges that if any Assessment installment is not paid when due, the Authority has the right to have the delinquent installment and its associated penalties and interest stripped off the secured property tax roll and immediately enforced through a judicial foreclosure action that could result in a sale of the Property for the payment of the delinquent installments, associated penalties and interest, and all costs of suit, including attorneys’ fees.  The Property Owner acknowledges that, if bonds are sold to finance the Improvements, the Authority may obligate itself, through a covenant with the owners of the bonds, to exercise its foreclosure rights with respect to delinquent Assessment installments under specified circumstances.

Another of the FHLA’s concerns that hasn’t gotten much attention bears noting. Homeowners who can’t afford solar panel will now become targets for shady lenders in a repeat of the whole interest-only mortgage debacle that helped fuel the housing bubble. I’m not saying that PACE will create another housing bubble, but do we really need to be adding to personal debt levels right now, especially for people struggling at the margins?

I’d love to end the burning of fossil fuels and dependence on foreign oil too. Increasing debt burdens to pay for it isn’t the way to go about it.