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SunCal May Face Foreclosure

By Sean Olson
Copyright © 2009 Albuquerque Journal
Journal Staff Writer

          A huge tract of land slated for residential and commercial development on Albuquerque's West Side could be turned over to creditors because of foreclosure proceedings against California-based SunCal Cos.
        Lenders filed a foreclosure lawsuit against SunCal Cos. in state court in New Mexico this week to collect more than $180 million in outstanding loans their developer used to finance the property purchase from Atrisco Land Grant heirs.
        Barclays, Five Mile Capital and iStar Financial jointly loaned SunCal about $220 million for the project, which SunCal co-owns with New York firm D.E. Shaw.
        The lawsuit asks that SunCal be compelled to pay $182 million, plus accrued interest and late fees, immediately. SunCal put up its project's assets, including the land, as collateral, according to the lawsuit.
        That means the lenders could seize the project from SunCal if it doesn't come up with the money.
        SunCal bought about 55,000 acres on Albuquerque's West Side for $250 million in 2007. The company's project was slated to include a master-planned community with acreage reserved for new industrial plants and retail, although the company has yet to lure a company into the project.
        The loan recently matured but no deal has been struck to renew, modify or extend the note.
        SunCal spokesman David Soyka said Friday that SunCal and D.E. Shaw had made all of its payments on time and have been trying to negotiate an extension.
        "We hope to work out an extension with the lenders, but the lenders need to decide amongst themselves," Soyka said.
        Foreclosure and debt collection lawsuits are sometimes filed to gain leverage in negotiating new terms for loan repayment, and it is unclear whether the lenders will try to seize the land if no new deal is struck.
        The future of SunCal in New Mexico is up in the air with the lawsuit, Soyka said.
        "The equity group (SunCal and D.E. Shaw) has been funding the costs of this project out of its own pocket. Now that this action has happened, we are going to have to explore our options," Soyka said.
        Soyka said he could not comment on the lawsuit until it has been resolved.
        The West Side development project has been at a standstill for more than a year, as SunCal suffered from a crashing housing market and resistance from some lawmakers on incentives for the company.
        SunCal has lobbied the state Legislature for a controversial incentive, a tax increment development district, for two years. In 2008, a Senate filibuster kept the Legislature from giving final approval to the incentive worth about $400 million, which had already been negotiated with the state and county.
        This year, the same measure failed in the House of Representatives on two 33-33 votes.
        SunCal has said the incentive would help draw new companies to its project and promised nearly 13,000 new jobs for the area in billboards and other advertising.
        Other defaults
        SunCal has had financial problems elsewhere. The company's various LLC corporations have defaulted on at least $184 million in loans in California and Nevada.
        Soyka said last year that those defaults stemmed from the collapse of Lehman Brothers, which was a partner in those SunCal projects. Lehman was not a part of the New Mexico project, Soyka said.
        SunCal sets up its operations so that each project is run by a separate LLC, or limited liability company. Those companies can file for bankruptcy or default on their obligations without legally affecting its parent company.
        In New Mexico, a default on the loans could cause a bankruptcy to Westland Development Co., SunCal's New Mexico LLC, but the parent company would not be liable for any payments.
        SunCal has made a series of agreements with the state and Bernalillo County, but officials said Friday that those agreements would not adversely affect any government organizations if SunCal defaults. Bernalillo County spokeswoman Liz Hamm said none of the county's agreements with SunCal contain any financial burden for taxpayers if SunCal's project fails.
        It is unclear, however, how a default would affect the Atrisco Heritage Foundation. The foundation was set up as part of the land sale to SunCal, and the developer had promised $1 million a year to the foundation. The foundation benefits Atrisco heirs by providing college scholarships and community projects.

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