09 March 2010

Canyon Crest: New Owner, Old Questions

Thanks to Hills for Everyone and its latest newsletter for the information that the Canyon Crest housing development project, a 165-unit executive tract slated for 367 acres of the hills at the north edge of Carbon Canyon, has entered a new phase in its long, convoluted history.  And, that history will only become more complex and labyrinthine!

The new owner is Old Standard Life Insurance, hereinafter referred to as OSL, which foreclosed on a note it held from previous owner, The Shopoff Group.  Shopoff had come quite close to getting approval on its application for Canyon Crest back in Fall 2008 before the devastation caused by the Freeway Complex Fire that November scorched the site and just after the financial meltdown that erupted in September and sounded the death knell to Shopoff's financial solvency. 

Now, get ready to try to follow along the twisted tale of real estate investment schemes!

Consequently, Shopoff's subsidiary, MRF Carbon Canyon, L.P., was served, in June 2009, a notice of default by OSL "due to non-payment of principal and interest . . . under the Plan of Reorganization approved . . . on February 27, 2008."  This comes from a October 2009 suppplement to the the August 2009 prospectus of The Shopoff Properties Trust, Inc., which also noted that

MRF Carbon Canyon, L. P. has attempted to negotiate with Old Standard to restructure the existing note extension . . . Negotiations between MRF Carbon Canyon, L.P. and Old Standard to date have not been successful and Old Standard has elected to accelerate the payments due under the promissory note and has commenced foreclosure proceedings under its first priority deed of trust on the property acquired by MRF Carbon Canyon II, L. P. in October 2005, and pledged to Old Standard as part of the Plan of Reorganization.  The trustee sale is currently scheduled for October 13, 2009.

Simply put, Shopoff bought the Canyon Crest property in Fall 2005 when the real estate boom was in full flower and there seemed to be no limits to where values could go.  As was the case in so many examples, Shopoff didn't have the financial wherewithal to actually carry out its plans for the property on its own, so OSL held a note that was taken out under Shopoff's Plan of Reorganization, which was finalized in February 2008.  By then, of course, the great real estate bubble was bursting and the debacle of the following September was looming.  Shopoff, which owned the City of Brea $138,000 in fees related to Canyon Crest, was slapped with the notice of default leading to foreclosure.

The trustee sale of 13 October 2009 formally transferred the Canyon Crest property to OSL.  At the 8 December 2009 meeting of the Brea Planning Commission under the "Informational" portion at the end of the session, Development Services Director View reported that "Old Standard Life Insurance Company, who recently acquired the Canyon Crest property, has contacted the City indicating they intend to pay the outstanding balance of approximately $138,000 by December 15th and move forward with application."

Yes, folks, OSL is planning, evidently, to keep the Canyon Crest project going, but to what end? 

It should be recalled that Shopoff almost certainly never intended to develop Canyon Crest, but spent lots of time and moolah in presenting a development proposal for the purposes of getting approval and that all-important tentative tract map, because . . . Shopoff had essentially been in the business, since its 2004 founding, of securing appreciation of its real estate assets for investors.

In the meantime, it would be worthwhile to know whether OSL did, indeed, pony up the $138,000 due to the City of Brea and when, if so, it plans to reinvigorate the Canyon Crest application.

It can be safely assumed that OSL is doing much the same with its plans.  Why?  More on that later (and the story only gets more mind-numbingly complex and bizarre)!

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