Local News

Wednesday, Aug 18 2010 07:30 PM

The Canyons hits financial turbulence

BY GRETCHEN WENNER, Californian staff writer gwenner@bakersfield.com

The Canyons -- the controversial hillside development in northeast Bakersfield -- has hit financial roadblocks that, in a worst-case scenario, could derail the project altogether.

Money troubles are brewing on two fronts.

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THE PLAYERS

Canyons LLC: The limited liability company developing the Canyons project. It is managed by Don Hancock of Sacramento. Before 2004, when Hancock formed Canyons LLC, he developed the project through his company General Holding Inc.

Cascade Acceptance Corp: The major lender to the Canyons project. The Marin County company, which is now in liquidation bankruptcy proceedings, currently has more than $37 million in outstanding loans made against the project.

Don Hancock: The Sacramento developer behind the Canyons project. He first locked in buying rights for some of the land in 1990.

Barney G. Glaser: The Mill Valley sociologist who is the sole principal of now-bankrupt Cascade Acceptance Corp., the Canyons' main lender.

The Canyons: An 889-acre development on northeast Bakersfield's bluffs with plans for more than 1,330 homes. The Bakersfield City Council approved the Canyons in September 2009 after years of debate. It had been nearly two decades in the making.

For one, the Sacramento developer's empty pockets have slowed defense of an existing environmental lawsuit.

Second, the lender of $37 million in loans made against the property is now in liquidation bankruptcy proceedings. The loans, which are in default, could be foreclosed on, casting a murky future on the ownership of 847 acres now held by Canyons LLC.

The developer, Don Hancock, says he has a new venture capital partner and is working on a plan to buy up the bankrupt lender or just the Canyons LLC property.

The two court cases aren't related, though each harbors potential threats to the development, which the Bakersfield City Council approved last September after years of contentious debate. The project totals 889 acres in all -- some land is owned by other developers -- and will put more than 1,330 homes on the rugged bluffs overlooking the Kern River.

ENVIRONMENTAL SUIT

Locally, a relatively small chunk of change has delayed a lawsuit filed last fall by the Sierra Club.

Ginny Gennaro, the city of Bakersfield's top attorney, said in past environmental suits, developers have fronted funds for the city's preparation of the "administrative record," a massive collection of paperwork comprising the official history of a project. Staff time to compile such a record can run $15,000-$20,000.

"I don't think the city of Bakersfield, or taxpayers, should be out the cost," she said.

Eventually the bill gets repaid by whoever loses the suit.

The city has asked for, and received, several extensions to prepare the record and is now asking the Sierra Club to put up the money. There's a court order to prepare it, Gennaro said, so the city is moving ahead no matter what.

Separately, the developer hasn't posted $40,000 into an escrow account as required by an indemnity agreement with the city, Gennaro said. The funds pay for an outside lawyer to represent the city when environmental lawsuits are filed over developments.

Gennaro said she's hoping the money appears, but if it doesn't, she'll cross that bridge when she comes to it.

Hancock said he'll get the money to the city. "We plan to do it," he said.

Canyons LLC doesn't currently have an attorney of record in the suit.

In a worst-case scenario, Gennaro said, if a developer didn't defend an environmental suit in court, a default victory would likely go to the plaintiff. The court could order the city to undo project entitlements -- zone changes, general plan amendments and certification of the environmental report -- which could mean a developer would have to start over getting those valuable approvals.

BANKRUPTCY

It's also not clear how the bankruptcy case of the Marin County lender, Cascade Acceptance Corp., will affect property ownership.

Cascade Acceptance, owned by Mill Valley sociologist Barney G. Glaser, has made numerous loans to the Canyons project over the years starting in 2000. Most recently, in January 2008, Cascade put up $25 million and a few smaller loans. The $25 million loan defaulted in April, county filings show, after the company's bankruptcy filing last November. With interest and penalties, Canyons LLC owes $27 million on the loan, which had been due in full on Sept. 1, 2008, the default notice shows.

In all, Cascade has more than $37 million in outstanding loans against the Canyons property, court filings show.

In July, after reports from a court-appointed examiner found the lender was insolvent and had been for at least two years, the bankruptcy case was converted from a reorganization proceeding to Chapter 7, a liquidation case.

The federal trustee, Timothy Hoffman, could not be reached Wednesday regarding the status of the case or what will become of the Canyons LLC property. Glaser, the lender, also could not be reached.

Before the land could be auctioned off in a foreclosure proceeding, a notice would need to be filed with the county. As of Wednesday, no such notice had been filed.

Separately, the acreage owned by Canyons LLC is behind more than $58,900 in local property taxes since defaulting in June 2009, said Tony Ansolabehere, Kern County's assistant assessor.

Hancock, the developer, said he and his new financial partners -- whom he declined to identify -- have made a "substantial" offer to buy Cascade Acceptance. The offer hasn't yet been submitted to the court, he said. But he plans to buy either all of Cascade or just the Canyons project.

"The Canyons will be finished," Hancock said. "Unfortunately, right now it's a terrible market."

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