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SunCal Slow on Transparency Promise

The City of Alameda has sent SunCal Chief Operating Officer Frank Faye a letter to ask SunCal to clarify their position with regards to the disclosure of Alameda Point pre-development and negotiating documents.

Mr. Faye addressed Alameda City Council in the wee hours of March 17th, in City Council meeting that ran past midnight from the previous evening.

In the letter, dated April 6th, Interim City Manager Ann Marie Gallant writes to Mr. Faye:

“Most recently, at the March 16, 2010 Joint City Council/Community Improvement Commission/Alameda Reuse and Redevelopment Authority meeting, you personally stated that as of March 16, 2010, SunCal would ‘officially commit’ to lift the confidentiality provisions in the ENA, with the exception of ‘certain business terms between SunCal and D. E. Shaw which are proprietary,’ and SunCal’s ‘underwriting model’ which you also deemed to be proprietary.”

Ms. Gallant notes that she is repeating a written request made to SunCal on March 11th for SunCal to “identify any and all specific documents SunCal will not disclose.” [Emphasis in the original.]

She also goes on to say that, in the interests of transparency, SunCal should disclose “any and all persons, business entities or community non-profits that have received payments or other compensation, including ‘in- kind services’ from SunCal and its financial partner, D.E. Shaw, and any of its affiliates, including the amounts received by each in connection with Measure B or any other aspect of SunCal’s efforts to develop Alameda Point.”

We have no word yet on a response from SunCal. Here is a copy of the letter.

City of Alameda Letter to SunCal on Transparency 04062010

3 comments to SunCal Slow on Transparency Promise

  • Barb

    Have to really appreciate City Manager Ann Marie Gallant and her continuing efforts to bring accountability to SUNCAL in its dealings with Alameda.

  • Vania

    The City of Alameda will know nothing, and end up just like the City of Oakland (in reference to Oak Knoll) unless SunCal and D.E. Shaw agree to disclose all limited liability company operating agreements for LLCs; limited partnership agreements for LPs; shareholders agreements, articles and bylaws including all schedules and exhibits and signature pages for all three types of documents, all the way up the organizational hierarchy chart to Bruce and Steve Elieff on the SunCal side, and all the way to the actual parent entity created by D.E. Shaw group (a non-existent entity) for “ultimate ownership” of the their share of the hierarchy.

    The need for full disclosure is illustrated by Bruce Cook in his declaration filed in the SunCal Oak Knoll bankruptcy. According to Cook, and the exhibits to his declaration, in the limited partnership agreement between the SunCal entity and the Lehman entity, to own Oak Knoll and 3 other projects, the Lehman entity was required to make a specific dollar capital contribution, but never made it in full. That was a breach of contract by the Lehman controlled entity, because the text of the partnership agreement contractually obligated capital contribution to the entity. In fact, according to news reports, that Lehman controlled entity, called LBREP II, actually sent money back to its investors in the Lehman/SunCal venture rather than pay the overdue bills and fire/asbestos hazard abatement costs on the Oak Knoll project, plus other bills and costs due on the other 3 projects owned by that SunCal Oak Knoll related venture.

    If the City of Alameda, let alone its residents, cannot see the full organizational documents of the chain of ownership of the project, and the dollar amount of those entities mandatory capital contributions, Alameda knows nothing.

    Second, learning from SunCal’s experience with Lehman at Oak Knoll, the City of Alameda needs to see actual proof that the D.E. Shaw capital contribution to the Alameda ownership entity has been made in full, and cannot be withdrawn.

    Third, learning from SunCal’s experience with Lehman at Oak Knoll, any mortgage loans made by D.E. Shaw must be fully funded, and have a long maturity date. SunCal got skewered by Lehman which sold the mortgage loans to third parties, and failed to fully fund. If there is a dispute between SunCal and D.E. Shaw, D.E. Shaw cannot be in the position to cut off loan funding to the Alameda project or if the loan is sold to a third party, to foreclose, putting a complete stranger in ownership and control of the project. The latter situation is what the City of Albuquerque is facing right now, with Barclays Capital’s original mortgage loan on SunCal’s Alameda project having been fully sold to strangers who are hot money lenders and vulture funds. On top of that problem, the mortgage loan which D.E. Shaw/SunCal used to acquire their Albuquerque had a ridiculously short maturity date, something like two years. Alameda simply cannot tolerate that because it is not any assurance of long term financing needed to develop Alameda Point as ultimately agreed between the City and SunCal.

    Fourth, the financing structure created by D.E. Shaw must assure that all the money to build the promised infrastructure and community improvements is there, in cash, not in bonds or loans, and cannot be withdrawn. San Clemente and Palmdale are in the throes of horrific litigation with SunCal’s bonding companies, trying to get the bonding companies to pay for all of the improvements which Lehman was required to fund as a condition to the granting of the land use entitlements to Lehman/SunCal.

    Fifth, Alameda cannot affort to allow D.E. Shaw and SunCal to assume that the cost of building infrastructure and promised community improvements will be funded by sales of land in the project. That is the failed financing model followed in all 30 of the Lehman/SunCal bankruptcies.

    Sixth, Alameda needs to see current audited financial statements on each entity which is part of the hierarchy of ownership of Alameda Point when the D.E. Shaw/SunCal entity purchases it from the City.

    Seventh, the Alameda should not “carry back a second mortgage” or subordinate any of its rights to those of any lender to the ultimate property buyer or their parent, grandparent or great grandparent companies.

    Bottom line, the City of Alameda’s senior staff and City Council should have the right to see and retain copies of every document a normal, prudent mortgage lender would ask for in connection with making a multi-million dollar loan to a borrower.

    The Alameda City Council also needs to attend a serious seminar, put on by the City Attorney and the City’s outside counsel, concerning silly contractual promises which a bankruptcy court would blow off if the entity which purchases Alameda Point or obtains control of Alameda Point’s owner ultimately files a bankruptcy. The city council, city staff or city attorney can write a mountain of non-monetary junk promises to be made by D.E. Shaw and SunCal, but those promises not firmly grounded in the City’s exercise of its police power through subdivision map act and zoning tied exactions, can simply be blown away by a bankruptcy court judge, as they have in all 30 of the Lehman/SunCal bankruptcies.

    Stay tuned as to whether D.E. Shaw/SunCal will reject their contractual promises to the Atrisco heirs and the Albuquerque community through their Delaware bankruptcy of their land ownership entity, Westland Devco LP, which was filed last week.

  • Barb

    Wonderfully detailed explanation Vania. Maybe the printed press could read it and get some of it to the masses. I hope our candidates for elected office are able to understand the complex intrigue as you have explainded it. And they are honest about it. Now that Tony actually earned his degree (as opposed to just claiming he had it when he ran for office the first time) maybe he will take the time to analyze this before he tries to sell Alameda down the tubes for a few SUNCAL dollars more.