David Schmalz here. Tomorrow, Aug. 1, a trial begins in Orange County that could have implications for the local coastline. Though what those implications might be is hard to say, because the trial relates to an ownership dispute between investors in Monterey Bay Shores, a would-be “eco-resort” on the shore in Sand City that the California Coastal Commission was essentially forced by the courts to approve in 2014 after denying it twice previously.
As those who live locally may know, that “eco-resort" has not been built, though some sand got moved around for a bit in 2018, but that’s it.
I wrote about the litigation in last week’s issue, and sought to untangle all the twists and turns that have gone on since the project was approved 11 years ago. In short, developer Ed Ghandour ran out of money, forcing him in 2015 to take out a $27 million loan, at 20-percent interest, to avoid foreclosure, and quickly had a falling out with the investors who loaned him the $27 million, and the parties have been litigating their disputes since.
I was tipped off about the trial earlier this year by an anonymous resident of Laguna Beach, who informed me that some of the investors Ghandour was suing were on the losing side of a real estate fraud case in Orange County that involved a portfolio worth hundreds of millions of dollars, and fraud of over $100 million.
The case is big news in Laguna Beach because it involves the historic Hotel Laguna, and at one point armed guards even came into the hotel and other properties to take over control. It was the type of story that captivates social media, and had the wealthy beach town talking.
In February, a judge ruled that Mohammad Honarkar, the entrepreneur who built a property portfolio once valued at $360 million that includes the hotel, was defrauded by investors who helped him refinance his debts. Those investors subsequently moved 23 LLC’s holding the portfolio’s assets into bankruptcy, and on July 2, Bloomberg reported that the bankruptcy judge assigned to the case in Delaware is likely to dismiss it due to an ownership dispute similar to Monterey Bay Shores, and involving some of the same investors.
The dispute, the judge noted, was dragging down the values of the properties in the portfolio, saddling them with more debt.
So as I was reporting about the ongoing litigation regarding Monterey Bay Shores, I kept asking myself: How much is the property actually worth now?
When the property was about to be foreclosed on in 2015, it was already encumbered with $77 million in debt, according to court records. How much debt it’s buried in now is unclear.
Even with the permit in hand to build a luxury “eco-resort”—which would cost who knows how much to construct—who would buy it at that price? Or even at $50 million? From a purely economic standpoint, only knowing the broad strokes, I don’t think the project pencils out.
Looking back at my past reporting, I was particularly struck by this data point: 385,000 cubic yards of sand would be trucked off-site to construct the resort, which amounts to about 50 truckloads a day leaving the property for a year, according to a Coastal Commission report.
Who has the liquid cash and wants to pay for that, all while potentially exposing themselves to liability for impacting snowy plovers, a federally threatened shorebird, which could shut down construction indefinitely? I just don’t see it happening.
I know many locals would like to see the shore remain in its natural state, and one sent me a note suggesting a land trust should take over ownership. If that were to come to pass, I just hope it’s not at the expense of taxpayers paying tens of millions of dollars for property that no one’s been able to develop because it’s too expensive and complicated to do so.
Investors are rewarded financially when things go as planned, and I don’t think taxpayers should pick up the bill when they don’t.