The Orange County Board of Supervisors has secretly brought development of downtown Laguna Niguel to an abrupt halt, quietly killing a contract with a developer of county-owned land.
City officials said they didn’t learn the project was dead until their Oct. 17 meeting and county supervisors still haven’t publicly reported their Aug. 22 vote to kill the development.
“I can’t tell you how frustrated as well as disappointed that the termination letter came out, especially since we weren’t asked,” Councilwoman Laurie Davies said at the meeting. “I feel like we were completely left out (by the county) and this project is in our backyard.”
County officials didn’t confirm details of what happened as of the end of the day Friday and Laguna Niguel council members were trying to find out if city staff knew the project was dead, but failed to tell them.
Laguna Niguel was formed in 1989, but has no downtown. The proposed project would have created a downtown area, known as the Agora Arts District Downtown. It was to be built on county-owned land where the former South County Justice Center sits unused, right next to city hall.
The county had a contract with Lab Holding to develop the site until the Board of Supervisors voted Aug. 22 in closed session to terminate the agreement. The County didn’t report out that vote and didn’t send the termination letter to Lab Holding until Oct. 16. The county’s chief real estate officer, Scott Mayer, told the Laguna Niguel City Council Oct. 17 the project was killed in that closed session vote.
Councilman Jerry Slusiewicz said the project fell apart after the county wanted to require a completion bond and implement a revenue share when the developer refinances its loans. He said it never was in the original proposal sent out by the County.
In this case, a completion bond is a form of insurance taken out on a project. If a developer doesn’t finish or walks off a project for some reason, the insurance kicks in and pays the for the rest of the project.
“It’s just my concern that it seemed some of the terms have changed in terms of what the County wanted from what was in the original RFP (request for proposal) in terms of participation in revenue sharing at some point in the future,” Slusiewicz said to Mayer.
Councilman John Mark Jennings echoed those concerns.
“I too have the understanding that the RFP the County put out didn’t include the completion bond and the revenue sharing that was requested,” Jennings said. “I’m very confused and concerned about that because the RFP should have, in my mind.”
However, Mayer countered it was in the original request.
“A few things have been said, and I want to make it very clear, in no way shape or form the county changed its position to be inconsistent with the RFP,” Mayer told the council. He also said the county always requires completion bonds.
“You’re telling us that everything is being asked now is in the original RFP?” Mayor Pro Tem Elaine Gennawey asked Mayer.
“That is correct,” he replied.
But developer Shaheen Sadeghi, founder of Lab Holding, said differently.
“Yes, the financial terms have changed significantly from the proposal that the LAB Holding presented and that was accepted,” Sadeghi wrote in an Oct. 19 email to Voice of OC.
“It came to us as a surprise that the county substantially change the terms of the deal and allowed us only 24 months to complete this very complex and detailed project, which is unachievable. After over 2 years of entitlement work. The decision by the county is not transparent and not straightforward,” Sadeghi wrote.
He said while he hopes to avoid litigation, he plans to “exercise every legal means available to us and will vigorously protect our time, resources and investment over the past 2.5 years.”
In an Oct. 18 interview, Slusiewicz said the County doesn’t need a completion bond on the Agora project because it’s not financing it — instead, they are leasing the property to Lab Holdings which secured its own construction funding.
“They (the County) don’t deserve to get a finishing bond, the lender gets it,” Slusiewicz said.
Other than an environmental report, Slusiewicz said the county isn’t funding anything on that development.
“The county’s not funding anything, other than splitting the EIR (Environmental Impact Report) costs with us.”
Sadeghi echoed Slusiewicz’ comments in his email, adding the County wanted two bonds.
“The County is not financing any portion of the project. While performance/completion bonds are not uncommon for a lender, it is not typically required by the land holder. One bond should (be) sufficient to cover this event. Having two separate bonds are unusual and cost prohibitive,” Sadeghi wrote.
Mayor Fred Minagar said the County requirements may have been too much for the developer.
“At the end of the day, unfortunately, I think the requirements of the county … they wanted this developer to comply with their standard agreement, just broke down,” Minagar said in an Oct. 18 phone interview. “Meaning that Shaheen (Sadeghi), the developer, could not deliver what the county wanted to deliver.”
At the meeting, the entire council was surprised to learn the contract between the County and Lab Holding had been terminated in a closed session vote and they weren’t notified.
“To know that yesterday (Monday) when the letter was sent is surprising,” Gennawey said.
“I’m a little disappointed they had that meeting in closed session,” Slusiewicz said. “The fact that it was in closed session, the fact they told us or not, I didn’t receive notification.”
But Mayer claimed notification was sent to the city.
“I will say, all three of those letters were provided to your staff,” Mayer told the council. “We did provide … those documents to your staff.”
However, in an Oct. 19 phone interview, Slusiewicz said he was told by staff that neither Interim City Manager Stephen Erlandson or Interim Assistant City Manager Debbie Bell had received any updates from the county on the Agora project.
“I want to know who’s at fault here,” he said. “Did the county drop the ball or did staff? Our staff is saying the city never received them (the letters).”
Slusiewicz said he called County Supervisor Lisa Bartlett’s office to see if letters were sent to the city. Her fifth district spans south Orange County, including Laguna Niguel. Slusiewicz said as of Oct. 19 he still had not received a response from Bartlett’s office.
But city Spokeswoman Calina North said in a phone interview Oct. 20 Erlandson received the termination letter after hours on Oct. 16 and forwarded it to City Attorney Terry Dixon the following morning, hours before the council meeting.
In November 2014, the County contracted with developer Lab Holdings to develop the 22-acre site into a mixed use of residential and commercial properties. The County and developer initially wanted more housing units, and the city wanted less, so a compromise was reached at 200 during the zoning process, Minagar said Wednesday night.
Council members said the housing units were a hard sell to Laguna Niguel residents and the council had been pushing hard for a downtown.
“So it was a give and take … I think it was a fair deal,” Minagar said. “Every city has something (a downtown), except our city … in 1989 when we were incorporated, that was the missing link to our plans.”
At the meeting, council members expressed concern about potential litigation and voted to suggest supervisors use a mediator, even offering to pay for it.
“I suspect that’s where this is going to end up … I am a litigator … we’re going to be drug out into what could be multiple year litigation,” Jennings said,. “If the city had to pick up the tab for the mediator, I’d probably support the idea.”
Meanwhile, council members suggested they, along with residents, show up to a Supervisors meeting to speak about the issue.
“I want them to realize that we want this project. We are willing to do pretty much anything we can to make this happen,” Davies said. “I don’t think we should give up on this. We’re not going to.”
Spencer Custodio is a Voice of OC reporter who covers south Orange County and Fullerton. You can reach him at scustodio@voiceofoc.org.