Alameda Point Explained: Whither SunCal?

Alameda Point Explained: Whither SunCal?

Michele Ellson

Potomac Shores is a planned resort community to be built on 1,920 acres of hardwood forest that hug a two-mile stretch of the Potomac River, in Virginia’s Prince William County. Once completed, the development is expected to include up to 4,000 homes and 3.7 million square feet of commercial space, including a five-star resort, along with a 450-slip marina and an already-built Jack Nicklaus-designed golf course.

The project’s town center has been redesigned to cluster major employers around a new, $75 million Virginia Rail Express station that will one day ferry passengers to Washington, D.C. – just 30 miles away – and its developer is promising more than 15 athletic fields, and eight-mile trail network.

McLean-based Kettler, Inc. reportedly worked on the project for a decade, until a $100 million loan from Wachovia Bank went into default and the bank seized the property, in 2009. Two years later Potomac Shores was purchased by a new developer, one that suffered similar misfortunes as a result of the economic meltdown but was able to turn them into a promising new business opportunity: Former Alameda Point developer SunCal Companies.

SunCal suffered three years of tough luck, with the Irvine-based developer losing a slew of California development projects after its financial partner, Lehman Brothers, tumbled into bankruptcy. A planned 55,000-acre development outside Albuquerque slid into foreclosure, while Alameda’s City Council voted SunCal off the Island after voters soundly rejected the company’s development and business plans for the Point.

But the same economic crisis that shut the door on dozens of the developer’s planned projects opened a window for an experienced development company that could access the capital needed to buy stalled projects from bankrupt builders – for a fraction of what had originally been invested in them. With the reported backing of D.E. Shaw and other financiers, SunCal began buying up stalled projects in Chicago, Las Vegas, Texas and elsewhere.

“We recognized that business opportunities presented themselves as a result of the global economic crisis and its impact on the housing market nationwide,” SunCal spokesman Joe Aguirre said.

Aguirre said the developer – which specializes in master-planning large communities – hasn’t abandoned its efforts to acquire and build on raw land. In March, SunCal broke ground on new military facilities at Camp Park in Dublin, and the developer will receive land for a planned mixed-use development in exchange.

It’s also not the first time SunCal has come in to jump-start a stalled project. The planned Marblehead development in San Clemente – which SunCal is no longer spearheading – has a tangled, decades-long history, and SunCal was also brought in to plan and develop Alameda Point after the original consortium of developers and financial types backed out of the project.

But the developer has made a much more aggressive push toward jump-starting stalled projects since the 2008 crash, purchasing 22 partially-developed residential neighborhoods in the Las Vegas area in 2009, Aguirre said, along with seven residential neighborhoods in Chicago and one in Stockton a year later, all from the same bankrupt developer. SunCal made their new national reach official in 2010, planting an office in New York City – a move that gives the company better access to new funding sources and acquisition opportunities in the East, South and Midwest, Aguirre said.

“We are continuing to seek out new business opportunities in key markets around the U.S. that are poised for growth,” Aguirre said.

The company reportedly made $100 million in land purchases in 2012 and at the start of 2013, paying $15 million for 758 acres of the partially finished ShadowGlen development in Austin, Texas and $19.8 million for the 208-acre Park Highlands development near Las Vegas.

SunCal was even able to buy back three of its former Southern California developments – SummerWind Ranch in Calimesa, McAllister Ranch in Bakersfield and McSweeney Farms in Hemet – at a public auction held by trustees selling the projects to pay off Lehman’s creditors, paying $71 million for about 4,300 acres which could ultimately see more than 11,000 homes. The projects reportedly had $300 million in debt tied to them.

Besides buying up stalled developments, SunCal’s principals own a separate business, Argent Management, which handles some $3 billion in distressed loans and bank-owned properties in 32 states. Their assets under management include a portfolio of more than 1,500 assets owned by Santa Monica-based Colony Capital that is valued at $817 million, Aguirre said. (Argent is also reportedly managing the Chicago and Stockton lots.)

Aguirre wouldn’t say who is financing SunCal’s buying spree, saying only that the developer works “with a variety of leading, well-funded investment firms.” D.E. Shaw, the New York hedge fund that was slated to back Point development after Lehman faltered, reportedly helped finance the Chicago and Stockton purchases in conjunction with The Roanoke Group and also reportedly backed the 2009 Las Vegas purchase; other firms have been named in news accounts as partners in separate purchases.

Whoever is backing SunCal, though, is helping the developer acquire properties at a fraction of what has been invested in them – with communities planned, development rights established and varying degrees of infrastructure already in place.

Kettler reportedly invested $200 million in the Potomac Shores development, which SunCal bought for $55 million from Wachovia, which was owed $121.5 million on the project. Park Highlands, the 208-acre Las Vegas property SunCal bought for $19.8 million, was part of a 2,675-acre purchase that cost the project’s prior developer a reported $639 million. And the Chicago and Stockton lots were bought for $8.3 million when their developer went bankrupt, a price one Chicago Tribune reporter characterized as “dirt cheap.”

At least some of SunCal’s bets seem to be paying off: According to The Wall Street Journal, the company resold the McSweeney Farms development it won at auction to a hedge fund that helped finance the deal for $15.5 million, the amount it paid at auction, and the developer quickly sold off 1,700 lots it bought in Las Vegas. And the developer is hopeful for the future of the developments it has acquired.

The test could be the $2.5 billion Potomac Shores development, SunCal's biggest. Ground has been broken on a new, 7,500-square-foot clubhouse for the development’s golf course, which is slated to open for play next year, and the first 371 homes are being developed for the “commuters, creatives and retirees” the company’s executives hope will buy them. Meanwhile, SunCal is hoping the FBI will choose the Potomac Shores as its new home.

In addition to the planned rail station, county supervisors have reportedly declared the area a tourism zone, which will put $20 million in future tax dollars generated by the development toward roads and utilities there.

"Potomac Shores is an exceptional property," said Aguirre, who said model homes have opened and interest from buyers is high. "We are looking forward to building out this transit-oriented community in the years ahead."


Jon Spangler's picture
Submitted by Jon Spangler on Thu, Aug 1, 2013

SunCal's business model certainly looks like a profitable one--and that seems to be all that SunCal's principals ever cared about. And investors in D.E. Shaw who do not account for social responsibility or ethics may be happy, too.

Given the way that SunCal's owners and top executives treated the City of Alameda--its opponents as well as former supporters like me--I do not wish them well or have any desire to see them work anywhere close to Alameda. And, being a person of faith as well as active political participation, I am sure that SuncCal, its principles, and its principals well be judged based on their ethics--or the lack thereof.

Ironically, the actual plan that SunCal proposed for Alameda Point that Peter Calthorpe developed with SunCal funding remains the most sustainable and environmentally sound plan ever fleshed out for AP because it integrated transit-oriented development, transit, and jobs in a way that minimizes traffic congestion. (When workers live within walking and bicycling distance of their jobs and do not commute in cars through the tubes and over the bridges there is minimal congestion, even with 3,000 residential housing units or more in a compact area.)

It is sad that the City of Alameda abandoned the sustainable Calthorpe model when it (quite correctly) ended its relationship withSunCal. It is sadder still that we are now continuing to use a piecemeal and auto-dependent development model in most of our planning decisions citywide
instead of embracing Calthorpe's proven model throughout our community.

Richard Bangert's picture
Submitted by Richard Bangert on Thu, Aug 1, 2013

Implementing the Calthorpe SunCal plan hinged on being able to issue redevelopment bonds to pay for massive infrastructure upgrades. Redevelopment agencies are gone and with them the bonding and taxing authority. Theoretical paper sustainability is meaningless without a financially sustainable plan to go with it.

The central development issue remains the same today as it did 16 years ago: Who or what mechanism is going to pay for infrastructure, and what is given in return for this investment. Piecemeal does not preclude sustainability. It's going to take 20 to 25 years - in other words piecemeal - to max out the potential of Alameda Point regardless of whether its one master developer or multiple master developers. Better that the city is cutting the deals than just reacting to high pressure sales pitches from a master developer that has the whole place tied up.

Submitted by Karen Bey on Thu, Aug 1, 2013

Having Hart Howerton as the master planner on the Potomac Shores project has success written all over it. What a nice development!