John King, one of San Luis Obispo County’s largest real estate developers, hotel owners and employers, has for decades built and acquired some of the Central Coast’s most well-known properties.
Now, King faces mounting financial troubles and stands to lose several properties to foreclosure, including the Inn at Morro Bay, a 490-acre property near Pismo Beach, a 386-acre property in Paso Robles and land slated for townhouses in Nipomo.
Last month, Wells Fargo Bank filed a complaint against the Inn at Morro Bay LLC in San Luis Obispo Superior Court, saying that the limited liability corporation failed to make payments on its $9 million loan and breached its contract with the bank by not disclosing that it had incurred additional debt — $5.5 million — through a third-party lender, Missouri-based Virtual Realty Enterprises LLC.
Wells Fargo is requesting that the court grant a judicial foreclosure, which means the property could be sold to pay what is owed, an amount totaling $8.8 million plus interest. As of Jan. 30, the LLC had failed to make payments totaling more than $65,000, according to court documents.
King bought the Inn at Morro Bay, a 98-room hotel on 4,000 acres inside Morro Bay State Park, in 1993.
He also owns five local hotels, including the Apple Farm Inn and Sycamore Mineral Springs Resort, as well as several more in Desert Hot Springs, South San Francisco and Big Sur.
In 2008 he had 700 employees in San Luis Obispo County and 1,000 companywide.
King did not return calls from The Tribune to discuss the challenges he faces.
But in a conversation earlier this year about the status of commercial real estate in the county, King described his situation as “unstable” and said that he was not unlike many commercial developers who have been affected by the severe recession.
“Every developer I know is very unstable,” he said. “We’ve sold a lot of assets in the last few years, just to keep payments as current as we can.”
He has put his own King Ventures headquarters at 285 Bridge St. in San Luis Obispo on the market for $2.75 million.
The Los Angeles law firm representing Wells Fargo did not respond to inquiries from The Tribune.
San Luis Obispo attorney Thomas Green, who is representing Virtual Realty, which holds the second trust deed on the property, also declined to comment.
The bank is asking the court for a preliminary injunction against the Inn at Morro Bay LLC and for the right to appoint a receiver to take over operation of the facility. A receiver could be appointed at a hearing scheduled for April 1.
That’s the same date the historic Motel Inn in San Luis Obispo, which King co-owns with real estate developer Rob Rossi, is set for auction on the San Luis Obispo County Courthouse steps. The property owners are in default on more than $5 million owed on it. They had hoped to salvage the property and find a new lender, but that plan didn’t work out.
Problem properties
While King works through his legal dispute with Wells Fargo, he has already lost the first of two major steps of his battle to keep other prized development property from foreclosure.
A lender, Rhode Island-based Textron Financial Corp., sued King in federal court in February 2009, claiming he had defaulted on loans of more than $14 million for a Price Canyon property called Spanish Springs II LLC, as well as another property, Vaquero de los Robles LLC, in Paso Robles.
Spanish Springs II, and its 420 acres, has been under development as part of a projected hotel and golf course resort of about 1,700 acres near Pismo Beach along Price Canyon Road. The overall project is called Spanish Springs.
King had finished the entitlements and engineering on Vaquero de los Robles, which was intended to be the North County’s largest resort, with hundreds of rooms in a spa hotel, bungalows, a vineyard and winetasting facility, visitor center, a series of lakes and golf courses. King said he was in discussions with Textron for new loans to build the Vaquero resort when Textron told him it was getting out of the lending business, King told The Tribune about a year ago.
King had fought Textron’s foreclosure on grounds that it had cross-collateralized the two properties without informing him in a timely manner. The cross-collateralization forced him to pay off each loan for each property entirely in order not to lose either, King claimed in court documents.
“They were going to be our partner in building the project, and we were negotiating to extend the loan,” King told The Tribune last year. “Now they’ve effectively cut us off at the knees.”
King also attempted to stave off his creditor by putting both limited liability corporations into Chapter 11 bankruptcy in May 2009. He listed Vaquero’s assets as $11 million and its debts at $11.5 million. Spanish Springs II assets were listed at $17.5 million, with $6.5 million in liabilities. But Textron succeeded last month in getting a relief from stay in U.S. Bankruptcy Court. The decision means Textron can proceed in its collection of Kings’ debts.
At the end of December 2009, King owed Textron an estimated $11.4 million for Vaquero de los Robles and $4.3 million for Spanish Springs II, according to the filing. The properties were appraised in the fall of 2009 at $10.4 million and $13.3 million respectively, a decrease in value by about 20 percent from the year before, according to Bankruptcy Court transcripts.
Textron attorneys had complained that King could not do anything with the properties “other than sit and wait for better times,” as recorded in the court transcripts.
King filed an appeal of the civil judgment from a year ago to the Ninth Circuit Court of Appeals on Feb. 18, 2010. The court has yet to make a ruling.
Nipomo project
King’s troubles extend into the South County as well. Nipomo Center LLC had planned a mixed-use project including a 59-unit townhouse development at 250 S. Frontage Road. The property is about 4.2 acres and has an assessed value of nearly $937,000.
But now the property is scheduled for auction on March 25 after the LLC failed to pay on the more than $5 million loan.
King told The Tribune in the interview earlier this year that he was working with a builder from the Central Valley who might take over the affordable housing portion. He also reached out to the San Luis Obispo County Housing Trust Fund for assistance.
Officials with the trust fund acknowledged that they have reviewed the project several times, but that it has been difficult to see how they might support it, even in better economic times.
Jerry Rioux, executive director, said the fund has “looked at the possibility of lending money for the construction of either some of the infrastructure or for the housing project itself.”
But he said that because of the economic environment, “it is too far away from reality to do.”
Comments