SLO real estate investor in financial trouble over downtown properties

Tribune photo by Jayson Mellom

Patrick Aurignac — a real estate investor, private money lender, broker and developer who once was vocally bullish on local commercial real estate — is in foreclosure on an estimated $10 million worth of his San Luis Obispo properties.

Those properties were bought in the past four years and are being foreclosed on by a number of lenders. However, Aurignac says only one local bank — San Luis Trust Bank — is to blame.

He has filed a civil lawsuit against the bank. The San Luis Trust president said he is withholding comment on the suit because it is pending litigation.

‘Land is bound to go up’

Three years ago, Aurignac said he was confident the San Luis Obispo commercial real estate market was “very strong.” And since people were selling downtown buildings because they could not afford the cost of seismic retrofit requirements, he was finding “a lot of opportunity.”

“Plus, San Luis Obispo is absolutely beautiful — one of the nicest downtowns in California — and there is only so much of it,” he said then. “As an investor, I’m very passionate about San Luis Obispo and feel that land is bound to go up.”

However, values in the real estate market have fallen since that time. Aurignac said “for sure now I’m upside down,” meaning he owes more on the buildings than they are worth.

His San Luis Obispo properties in various stages of default include his offices in a redeveloped Zion Church and parsonage at 863 and 867 Pacific St.; the old Granada Hotel and Rose and Henry Tailor building on Morro Street, and a retail building housing the Tails pet shop at 745 Higuera St. There is also property next to Cal Poly on Foothill Boulevard intended for a 16-unit condominium complex.

The Pacific Street offices will go to public auction April 6 on the steps at the San Luis Obispo County Courthouse, 975 Osos St.

Blamed on loan refusal

Aurignac filed a lawsuit Feb. 24 against San Luis Trust Bank, alleging wrongful foreclosure, breach of oral contract, negligence and promissory fraud, among other claims.

“This whole thing is because San Luis Trust refused to give me a construction loan on the Foothill project like they promised,” Aurignac said. “Now I’m losing all the rest. It was a huge domino effect.”

Brad Lyon, president of San Luis Trust, said he could not comment specifically on the Aurignac suit because it is ongoing. He said the bank has general lending limits so that San Luis Trust can give no more than 15 percent of its equity capital plus its loan-loss reserves to any one borrower.

During the time Aurignac wanted the loan, the bank was not allowed to give him more than an estimated $5 million (depending on the bank’s reporting period). Between other loans and the Foothill Boulevard property, Aurignac had already borrowed about $4 million from the bank, according to the developer. He needed an additional $3 million from San Luis Trust, which would have exceeded the bank limits by at least $2 million, by Lyon’s calculations.

The bank has also had a series of orders from the federal Office of Thrift Supervision requiring it take certain actions to bolster its bottom line. One of those is a cease-and-desist order in November requiring that San Luis Trust raise additional capital, devise strategies for maintaining adequate short-term and long-term liquidity, revise its policies for modifying loans and identify and report its allowance for loan and lease losses.

At that time, Lyon told The Tribune the bank was no longer going to issue construction loans because of the risk involved. About 80 percent of the bank’s charge-offs in 2008 and 2009 was from land development and construction loans, he added.

Tore down frat house

Aurignac bought the 3.25-acre Foothill Boulevard property near Cal Poly for $2.5 million in June 2007. At the time, it had a fraternity house on it that was paying $18,000 a month in rent. Lyon and Executive Vice President Casey Appell reportedly assured Aurignac that they would give him a construction loan, and encouraged the developer to move forward with rezoning the property to allow for condominiums and obtain entitlements and permits for its development, the lawsuit states.

Aurignac said the fraternity’s rent check was enough to pay for his debt to San Luis Trust on the first loan. However, in May the bank forced Aurignac to secure his line of credit amounting to $1.4 million on the property as well. That meant Aurignac owed the bank $3 million on that property alone.

The bank then advanced $160,000 for Aurignac to demolish the house, Aurignac said, adding that he would not have torn down the income property and incur additional debt without the bank’s promise for construction funds.

“In the meantime, the cost of construction is going up and the market is deteriorating,” Aurignac said. “I think they’re trying to force me into bankruptcy so they can have the property to themselves.”

Aurignac had brought another lender and investors to help finance the construction, but San Luis Trust Bank turned the offers down, he said. San Luis Trust Bank attorney Gregory Coates, however, said those offers would have put the bank’s original loans in second position on the deed — so that alternative was unacceptable.

Aurignac sought a temporary restraining order in Superior Court on March 23 to prevent San Luis Trust from selling the property, but Judge Charles S. Crandall denied the request, saying it was unnecessary. The sale of the property is not officially scheduled, but should occur sometime mid-May, Coates told the judge in court. In the meantime, San Luis Trust will file opposition papers to the court. Another hearing on the matter is scheduled for May 6.

One bank stays out

San Luis Trust is also foreclosing on Aurignac’s retail building at 745 Higuera St. He owes $780,000.

First Bank of San Luis Obispo is foreclosing on his Pacific Street office buildings because of his failure to make payments on a $1.9 million debt; and American Principle is seeking foreclosure on his Morro Street Granada Hotel because of a $2.8 million debt, according to documents in the county Clerk Recorder’s Office.

Other banks are suing Aurignac to recover unsecured business loans. Founders filed suit in December for $500,000; Rabobank filed suit in March for $250,000.

Aurignac also owes $1.4 million to Coast National Bank, but that bank is not filing suit against him, he said.

“They’re working with me, lessening my interest rates, being creative,” Aurignac said. “That’s what a community bank is supposed to do.”