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Revitalize Alameda Point – Protester Shadows SunCal’s Parade Car

At today’s Alameda Fourth of July Parade, a protester shadowed SunCal’s parade car over the three mile long parade route.

SunCal’s parade car was a 1967 Plymouth Barracuda convertible, donated by an Alameda resident.

The car was shadowed over the three mile long parade route by a protester holding a sign reading “27 Bankrupt$ Don’t Add Up.”

SunCal Companies Parade Car, 4th of July, 2009

SunCal Companies Parade Car, 4th of July, 2009

SunCal: 27 Bankrupts Don't Add UP

SunCal: 27 Bankrupts Don't Add Up

1 comment to Revitalize Alameda Point – Protester Shadows SunCal’s Parade Car

  • Detailer

    The protester is wrong. There are 30 SunCal related entities in bankruptcy. In those cases, various Lehman Brothers subsidiaries acted as limited liability company member (aka partner or joint venturer) and as mortgage lender. In those cases, various entities forming parts of what are called “The SunCal Companies” were also limited liability company members with the Lehman entities, i.e. partners or joint venturers. While in each case one Lehman Brothers entity was the “mortgage lender” and a different Lehman Brothers entity was the “LLC member” of the developer/borrower, signature blocks on various documents in the court files show that all of the Lehman Brothers entities had the same decision makers, both before and after the main Lehman Brothers bankruptcy.

    With respect to all of the cases, Lehman Brothers “Chief Restructuring Officers” in bankruptcy, Alvarez & Marsal, operating out of New York City, is the business decision making authority for both the bankrupt and not-bankrupt Lehman Brothers subsidiaries. The New York Observer has reported that one or more of those entities have recently re-hired Mark Walsh, the former head of Lehman Brothers’ real estate lending and investment operations, to be involved in management of the Lehman Brothers real estate empire in and out of bankruptcy. Several business publications, and SunCal’s management have implied that Mark Walsh was the architect of and decision maker for the original Lehman/SunCal dealers.

    Alvarez & Marsal, in the person of Brian Marsal, have publicly articulated a simplistic strategy to maximize Lehman Brothers’ investment in the Lehman/SunCal projects by foreclosing on all of the Lehman/SunCal projects, to remove both SunCal and the projects’ mechanics lien claimants from any ownership rights or decision making influence over the projects. So far, Alvarez & Marsal have been unsuccessful in that plan. Brian Marsal has said he wants Lehman Brothers to simply hold the Lehman/SunCal project land “until the market turns around”. In contrast, the mechanics lien claimants on the projects want the projects sold, now, at any price, to pay off their claims. All of the Lehman/Sun Cal projects are involved in two adversary proceeding lawsuits, under the jurisdiction of the Bankruptcy Court for the Central District of California, wherein the injured party/plaintiff lien claimants claim that Lehman Brothers entities acted fraudulently in only partially funding construction contracts which had been let, while at the same time paying themselves huge loan fees for mortgage loans, and in some cases dividends arising out of ownership interests, which were supported by ever increasing appraisals of the land the Lehman/SunCal entities owned.

    The first four (4) Chapter 11 bankruptcy cases were consolidated as Central District of California Case 08-bk-15588-ES called In re: LBREP/L-SunCal Master I LLC. Those cases involve the McAllister, McSweeney and Summerwind projects. That case includes the infamous project highlighted in the Bakersfield Californian, where sheep were grazing on a completed championship golf course. The cases were filed involuntarily against the Lehman/SunCal entities by angry mechanics lien claimants and the second mortgage holder, both of whom alleged a now bankrupt Lehman Brothers subsidiary mortgage lender wrongfully failed to fund the project. This case has a Chapter 11 trustee, and the judge refused to allow the Lehman Brothers lender subsidiary to foreclose. In that case for foreclosure, Lehman Brothers did not use top flight bankruptcy lawyers to represent it. That decision is on appeal. The angry subcontractors, the second mortgage lender and the trustee are suing both SunCal and various Lehman Brothers subsidiaries for failing to fund normal construction costs of the project.

    Filed and administered independently of the first 4 Lehman/SunCal bankruptcy cases, the other 26 bankruptcy cases are a mixture of cases voluntarily filed upon the signature of SunCal’s principal Bruce Elieff as LLC manager, and involuntary cases filed by engineers, architects and other service providers still friendly to Elieff. The involuntary cases had to be filed for certain entities, because Lehman Brothers’ consent was required for a voluntary filing, and obviously Lehman Brothers would not give that consent. The cases were filed to stop Lehman Brothers subsidiaries (bankrupt and not) from foreclosing on those entities projects. Those 26 case are consolidated under the lead case in Central District of California Case 8:08-bk-17206-ES called In re: Palmdale Hills Property LLC. The 26 cases include the more famous incomplete Lehman/SunCal projects: Marblehead in Orange County, Oak Knoll in Oakland, Northlake in Castaic, Ritter Ranch in Palmdale, Delta Coves in the San Joaquin Delta, and a tiny parcel of land in Century City (LA) called the Welton Beckett property where Lehman/SunCal engaged in a furious bidding war for the property against Donald Trump. The Welton Beckett parcel is on the city line of Beverly Hills, which doesn’t allow high rise apartment buildings. Lehman/SunCal envisioned an incredibly tall apartment building, draped in greenery to make it look like the hanging gardens of Babylon. These 26 cases have a different Chapter 11 trustee than in the first 4 cases, but he only has jurisdiction over entities where an involuntary bankruptcy was filed. On the key issue of suing Lehman Brothers entities for failing to fund the construction costs of the projects, the voluntary debtors (still under SunCal’s control) and the Chapter 11 trustee use the same lawyer. A variety of Lehman Brothers entities (some bankrupt and some not) held mortgages on the properties of these 26 entities. In these 26 cases SunCal alleges that the Lehman Brothers mortgage lender entities wrongfully stopped funding on these projects. The same California based bankruptcy judge as assigned to the first 4 cases refused to allow those lenders to foreclose, but during the hearings on foreclosure, it turned out that some or all of the Lehman Brothers entities had assigned their rights as mortgage lenders to third parties (without telling SunCal) and the assignee-mortgage lenders had not undertaken any obligation to continue disbursing money to their respective Lehman/SunCal borrowers to keep paying project bills. In these 26 cases, Lehman Brothers bankruptcy managers (Alvarez & Marsal) used top flight bankruptcy lawyers from New York and Los Angeles, but they still did not prevail in their quest to foreclose. In these 26 cases, Lehman Brothers lawyers made a lame and incorrect argument that because the Lehman Brothers parent company was in bankruptcy in New York, that the bankruptcy court in California could not take any action adverse to the interest of any Lehman Brothers affiliate, even those NOT in bankruptcy. In these 26 cases, Lehman Brothers New York bankruptcy lawyers and the New York bankruptcy court judge threatened to hold the lawyers for the 26 California bankruptcy debtors and trustee in contempt if they didn’t “cease and desist” acting against the wishes of Alvarez & Marsal. The California bankruptcy court judge and the lawyers for the 26 debtor entities and their trustee didn’t blink, and the California based bankruptcy court refused to allow any foreclosures.
    In the adversary case, concerning wrongful failure to fund the project, and seeking to invalidate the mortgages originated by the Lehman brothers entities, filed by the 26 debtors against the various Lehman Brothers entities not in bankruptcy, the parties are engaging in a pleading battle over what the case can say, with the 26 debtors third revised complaint due to be filed by July 10, 2009. In connection with that adversary case, seeking to invalidate the Lehman Brothers originated mortgages, the 26 debtors filed a proposed Chapter 11 Plan of Reorganization in June 2009, which the various Lehman Brothers entities are aggressively opposing. The Chapter 11 Plan proposes to sell the 26 debtors’ projects to third parties, pay off the mechanics lien and unsecured creditors claims, and not pay the Lehman Brothers entities anything.
    The next hearing on that Plan is on July 16, 2009. While the battle over than plan is pending, various third party creditors and the City of Palmdale are asking the bankruptcy court judge to allow their lawsuits against individual Lehman/SunCal entities to proceed outside the bankruptcy court. The judge has ruled on some but not all of those motions. The City of Palmdale’s motion for relief from stay, filed using a very expensive real estate development law firm, asks the bankruptcy court to allow the City to pursue a lawsuit against two insurance companies, who issued subdivision improvement bonds to the City in connection with the Ritter Ranch project, and a claim that both Palmdale Hills Property, LLC as developer and the insurance companies as bond issuers breached their contract with the City to build off site improvements promised as part of the land use entitlement process, or pay on the bonds so that the City could build them.

    What the residents and City Council of Alameda should learn from the Lehman/SunCal bankruptcy cases are: (1) City officials, let alone members of the public will NEVER know whether “financial partner” like Lehman Brothers or D.E. Shaw have committed and set aside sufficient cash to build all on-site and offsite improvements promised in connection with a project; (2) Financial partners hold their interests in projects as co-owners, and commit funds as lenders, in subsidiary entities so that the financially well endowed parent company can never be looked to as a binding source of financial commitment; (3) no City can control the identity of persons or companies managing a development or redevelopment project, despite promises to a City, because (a) the parties can amend their LLC documents without the City’s consent; (b) a party can seize control of an entity without the City’s consent simply by cutting off funding; (c) bankruptcy courts always have jurisdiction to decide who controls a bankrupt development company, be it one or the other partner or a Chapter 11 trustee; and (4) no City can cancel land use entitlements simply because of a bankruptcy (the so-called no ipso facto clauses of the Bankruptcy Code), and no City can sue to collect on bonds for promised-improvements, without the consent of the bankruptcy court judge. Bankruptcy court judges operate under a Bankruptcy Code and Bankruptcy Rules which give very short shrift to any promises made by real estate developers, unless performance on those promises is secured by a first lien mortgage on real estate. Few, if any, real estate mortgage lenders are willing to have a second mortgage, junior to a mortgage securing performance of a developer’s promises to a City. As a result, the bottom line is that City Council members, City managers, City attorneys and in the case of initiative measures voters, all are foolish to grant any concessions to any real estate developer based upon “promises”, no matter how carefully and cleverly written for the benefit of the City.

    It really doesn’t matter if there are 27 Lehman/SunCal bankruptcies or 30 Lehman/SunCal bankruptcies. The reality is that for the last 40 years or so, real estate development project development entities have filed bankruptcy for legitimate reasons, like avoiding wrongful foreclosure, and for illegitimate reasons, like getting out of onerous contracts, and there is nothing that Cities or voters can do to ameliorate the effect of such bankruptcies on their unrealistic expectations of real estate developers large and small.

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