Big Banker reports: "On November 30, 2017, a Notice of Default was filed on Sonora Shores Harmony @ 1 project. This is the existing loan recorded April 30, 2014. The Trust Deed in the amount of $9,600,000 has swelled to $13,572,548.99. The loan was due to be paid in full by April 25, 2016." 

Big Banker reported August 8, 2015 here on Riptide about Harmony @ 1 finances: "As of the close of business Friday, August 28, there were no recorded liens or notice of default. First loan, $5 million. Second loan, $5.6 million. On February 17, 2015, a strange deed of trust was recorded by Sonora Shores in favor of Urban Land, a performance deed of trust, which normally means there is some kind of equity share agreement between Sonora Shores and Urban Land, a specific performance action that takes place when lots sell. The only items filed and recorded were the Declaration of Convents, Conditions, and Restrictions (CCR); and a subordination agreement on July 29, 2015 regarding the CCRs."

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Harmony is no A project but rather a number of projects each requiring approvals. Each lot is a separate APN. The land of each lot is to be sold individually and built individually: 13 lots means 13 projects. The business plan was a dumb-ass idea 10 years ago and still is. The math overall, selling each lot to a private builder/family/speculator, just doesn't work out for the buyer. I'm sure everyone had fun developing the proposal.

What a surprise! Thanks to a former City Council "digging for dollars" so hard, forgot to do due diligence?

I don't know the foreclosing beneficiary or the people in the Sonora Shores group, but here are a couple of different scenarios on what can happen:

1. Sonora Shores just lets the property foreclose and the lender sells it to someone to finish the project.

2. Sonora Shores and the lender get together and work out a loan modification (possible but not likely, being that they sold only one lot).

3. Sonora Shores files bankruptcy and goes in front of the judge and tries to reorganize.

4. Sonora Shores finds a partner to infuse cash into the project to keep it going (not likely due to the amount of debt on the property).

So, Big Banker, what's your opinion of the likely outcome for the scarred hill now? I personally have been hoping nature would take it over as my view looks directly at it, so would appreciate your thoughts on this.

Those deals use other people's money. This is what he explains in his book "The Peebles Principles."

If you bought a house using a bank, or seller financing, you used Other People's Money (OPM) also.

Is there a more recent version of the zoning maps than the 2001 version online?

Yes, Mr. Peebles' book is worth reading. Chilling.

BB: The reason Peebles is "one of the most successful African American CEOs in the country" and his net worth is more than $700 million is precisely because he knows how to pick deals. Those deals use other people's money. This is what he explains in his book "The Peebles Principles."

Erin: The entire quarry site is zoned commercial. The zoning can't be changed to allow any residential, on any part of the site, without approval by a vote of the people.

Please clarify that half the quarry is zoned for planned development (requiring a vote) and the other half is zoned for service commercial (not requiring a vote unless residential is included). Service commercial seems a bit nuts when you consider what storage warehouses would look like and the rents he could secure with those. Yuck! An unnamed local said we could have the biggest pot farm in the Bay Area and make a fortune in revenue for the city. I'm sure there would be no shortage of volunteers in the quality control department.

"Don Peebles is already one of the most successful African American CEOs in the country, but his recent building spree has put him one step closer to becoming a billionaire.

Forbes now estimates that his net worth is more than $700 million – and with several nine-figure developments underway, his fortune could very well keep going up. Peebles, 54, says he’s built up his six million square foot portfolio by picking deals that transform and open up opportunities. He’s known for weaving in $10 million and up apartments alongside redevelopment projects in some of the most impoverished areas in cities across the Eastern seaboard."

Peter: That's really interesting. I didn't know that he actually made money by losing the election. I did know that he lost nothing except time spent courting the locals, but that was time well-spent, apparently.

There was the additional terrifying prospect of Prop. 90 during that election. If that had passed, all bets would have been off, in terms of local land-use control. That was the brainchild of a New York-based real estate billionaire -- forgotten his name.

BB said, "Our mutual friend Don Peebles also has very deep pockets." Peebles is the perfect example of Intro to Real Estate: Play only with other people's money. He bought the quarry property for $5-6 million using a $16 million non-recourse loan. He spent $2-3 million more of that developing pretty pictures, hiring Andres Duany to spout his new urbanism philosophy and design concepts, and on the campaign to get the voters to approve 355 housing units in the quarry. He lost. Then he walked away with $8 million in profit and left the finance company holding the bag for the unpaid loan. Peebles didn't spend a dime of his own money, and he made money on the deal by defaulting on the loan.

I read his book. The one sentence that still is engraved on my brain is: "You make your money going in." In other words, he had made his money by borrowing the money and buying the property before he ever did anything. He was never going to make money by developing the property. Instead, he was going to increase his profits 100 times simply by getting the voter approval. He didn't get it, so he walked away with money he gained by defaulting on the loan. He had already made his money going into the deal. That how he does it – with other people's money.

Most of the property is designated as Open Space Residential, which requires a minimum of 5 acres per house; the rest is Very Low Density Residential, which requires 1/2 to 5 acres. In addition, it's in the Hillside Preservation District, which limits the site coverage to 6 acres. This restricts the development to the approved 12 units, and I believe it would require a General Plan amendment to change that.

Sonora Shores purchased the property on April 30, 2014. It pulled out one loan for $5,325,000, then the next recorded document is a second loan for $5,600,000. Then on December 8, 2016 it took out an additional loan for $9,062,000.

So what I see recorded on the property looks like it has three loans.

1st: $5,325,000

2nd: $5,600,000

3rd: $9,062,000

It looks like all three of the loans are currently on the property because subordination agreements have been recorded.

Three loans on a construction project and development project with only one sold lot is extremely rare.

Intro to Real Estate: Play only with other people's money.

Peter, not always. Some developers have very deep pockets and pay cash for every property they purchase. Friends of mine purchased a property with more than $18,000,000 of debt for $5,300,000 in cash the other day.

Our mutual friend Don Peebles also has very deep pockets.

Some developers are a cluster fart and can't finance enough money to buy postage stamps.

Likely scenario. It's interesting to me that a Canadian company is operating a U.S.-based LLC. The taxes are not friendly in Canada because it is taxed as a corporation and they can't pass them through as we do in the U.S. I seriously wonder how they can turn this around without volume housing up there. That's already zoned residential, so it's entirely up to the Planning Commission?

"Instead we'd like to build 112 homes on 5,000-square-foot lots."
Or 1,200 condos.

Intro to Real Estate: Play only with other people's money.

Legalized Gambling 101 (supplemental course to Intro to Real Estate): Play only with the money you can afford to lose.

It appears that only a single Harmony@1 lot has sold as of this week.

I suspect that at some point in the future we'll see the new owner in front of the Planning Commission stating: "Now that we've irreversibly built roads on the hillside, we can't make this project profitable with just 10 homes. Instead we'd like to build 112 homes on 5,000-square-foot lots."

Big Banker says he will get back to you tomorrow.

Thanks for the update on this, Big Banker. I've been wondering what's been doing up there lately.

Am I reading correctly that ~$27 million in loans have been taken out so far with the sale of only one lot to show for it? If so, yikes.

I'll echo Britt's request -- can you put this all into context?

BB: Can you speculate to the rest of us non-finance/real estate people what that could mean?

In December 2016, Sonora Shores took out an additional $9,062,000. It doesn't look like any of the previous debt was retired. Also, only one lot has sold as of close of business on Friday, March 17.

This Riptide story is again relevant RE: the $7.5M in new financing Sonora Shores recently acquired:

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