Last week, SunCal announced that they had secured $500,000 from the Lehman Brothers bankruptcy trustee for “maintenance” at their stalled SunCal Oak Knoll redevelopment project. Past and more recent court documents prove the assertions by SunCal are hollow. Documents also show how SunCal brings very little, if any money to their deals, and they rely pretty much exclusively on their financial partner, such as Lehman for Oak Knoll, or DE Shaw for Alameda Point.
On October 8th, representatives of Lehman Brothers’ lenders, and the Trustee for the Lehman Brothers bankruptcy, Stephen Speier, filed documents with the bankruptcy court that downplay the fire hazard at Oak Knoll, and make a case for minimizing the amount of cash the Trustee pays out to mitigate the hazards at Oak Knoll in response to complaints filed by the City of Oakland and Oakland residents. In the filings, they write:
..not all of the work described in the City of Oakland Opposition is required at this time to address the health and safety issues at the Oak Knoll Project. The truly immediate concerns can be addressed through expenditures to abate certain fire hazards, by removal of vegetation and trash on the premises, and by fixing the existing fence and providing adequate security for the property.
…it is my belief that the demolition of buildings on the Oak Knoll Property, as referenced in the Surcharge Motion and the City of Oakland’s opposition, does not need to take place within the next 120 days because the immediate health and safety concerns can be addressed through the proposed increased security on the property and repairs to the existing fence.
The proposed budget does not provide for payment of costs in connection with the demolition of certain structures at the Oak Knoll Project. The Movants respectfully submit that if the City of Oakland believes it has certain rights to compel the Trustee to pay such costs, then it can exercise such rights by bringing them before the Court in an appropriate fashion.
in other words, their response to the City of Oakland’s demands to abate hazards at Oak Knoll amounts to a Bronx cheer.
As regards “repairs to the existing fence,” an October 8, 2008 letter from SunCal Companies to Lehman Brothers, part of the bankruptcy court record, notes that “The fence [at Oak Knoll] is cut open 5 to 10 times per week. While the police have arrested a few people, they have not been prosecuted and often return to the site in hours.”
So Lehman Brothers knows that repairing the existing fence is hopeless. So does SunCal – they were the ones who noted the problem of the fence being repeatedly cut in the first place. Yet, in an attempt to mitigate the bad press they are receiving over Oak Knoll, lest it negatively impact their efforts at Alameda Point, SunCal still insisted on trumpeting the $500,000 for cleanup, maintenance and security at the site.
Not to mention that both SunCal and Lehman Brothers have known about the asbestos problem at Oak Knoll since at least October of last year and even now, despite claims from residents, the City of Oakland, and the bad press, neither of them have any plans to do anything about it in the near-term.
Where Was SunCal’s Money?
Court documents also show that SunCal was to commit $66.6 million to a joint fund with Lehman Brothers, created in 2006 and named the “Lehman SunCal Real Estate Fund LLC.” That would be the “fully discretionary” fund that SunCal bragged about to Alameda City Council back in 2007. Lehman was to have kicked-in $600 million for a 90% interest, leaving 10% for SunCal.
However, on October 9, 2008 – less than a month after Lehman Brothers filed for bankruptcy – SunCal was writing to Lehman noting that “SunCal Oak Knoll LLC assumed responsibility for site security and vegetation management after purchasing the site from the Navy” and begging for money from Lehman to settle back-payments owed to a demolition contractor, asbestos reviewers, security agencies and a tree removal contractor. SunCal told Lehman “Our own presence on the site will diminish. We have a leased construction trailer there now that will be eventually removed after the electricity, phone and power are shut off.”
Where was SunCal’s money?! They were supposed to have committed $66 million to the joint venture with Lehman – yet in October 2008, they couldn’t even afford to keep a trailer on the site, let alone pay for security. It seems that, despite the promises, SunCal doesn’t actually bring any money into these deals – they are completely reliant on their capital partner. And for Alameda Point, SunCal is reliant on a sole-source partner, DE Shaw, just as they were reliant solely on Lehman Brothers for Oak Knoll. Or whatever money they did bring in, they must have gone through it pretty quickly, suggesting incompetence or mis-management. What should we expect from them if they go forward at Alameda Point?
Incidentally, according to court filings, “SCC Acquisitions Inc.” is the name of the SunCal “mothership” entity of all the various SunCal LLC’s and other entities that collectively do business under the moniker “the SunCal Companies.”