Potomac Investment Associates' agreement last week to buy the undeveloped La Jolla Valley project is the first step in a process that may someday bring a Professional Golf Assn. course to the controversial site west of Rancho Bernardo.
But formidable obstacles stand in the way of the 4,666-acre development, which would also include hundreds--perhaps thousands--of housing units. The most formidable is the requirement that, to comply with a growth management initiative passed in 1985, any development of the site receive prior approval by San Diego voters.
In light of the prevailing slow-growth sentiments of much of the San Diego electorate, the chances of PIA winning such a vote in the near future are no better than 50-50, according to Joann Johnson, an administrative aide to City Councilwoman Abbe Wolfsheimer, whose district includes the La Jolla Valley parcel. Wolfsheimer was out of town and unavailable for comment Monday.
In a telephone interview Monday, Gene Holloway, general partner of Gaithersburg, Md.-based PIA, said his firm's precise plans for the parcel are still "several months away" from being formulated but that the proposal will include a combination of residential and tournament golf course development.
Can Afford to Wait
"We don't look on it as a gamble but as an investment in an extremely valuable piece of property," Holloway said.
With U.S. Fidelity and Guaranty Co., a Baltimore-based insurance company, as its financial partner, PIA can afford to be patient in an approval process that many observers expect to take years.
"At some point, something is going to happen on that property," Holloway said. "And we believe that what we propose will be perceived by residents and city officials to be the best thing that could happen on that property."
PIA and U.S Fidelity and Guaranty agreed to buy the property last week for $52 million in a settlement approved in U.S. Bankruptcy Court in San Diego. University Development Inc., seller of the property, filed for protection under Chapter 11 of the bankruptcy code last April to avert foreclosure on $45 million in principal and interest owed to its two major lenders: a Teamsters union pension fund and Home Federal Savings.
PIA's bid was part of a package proposal that included Signal Landmark paying $3.5 million for 400 acres of La Jolla Valley. Also as part of the settlement, several unpaid creditors of University Development will receive a 13% interest in the new owning partnership, said Ross Pyle, an attorney who represented University Development. The purchase is expected to close in 60 days.
Pyle said a competing bidder, a group led by Paragon Group of Los Angeles, made a higher bid of about $70 million for the property, but he said the bid contained certain escape clauses that amounted to a "90-day free look."
University Development took PIA's cash offer because it was anxious to nail down a sale of the property before a foreclosure auction scheduled for next month by Home Federal, Pyle said.
The Professional Golf Assn. so far has made no commitment to build or operate a golf course at La Jolla Valley. But Vernon Kelly, president of PGA Tour Investments, said the association has been interested in the site for some years, and he indicated the PGA might make such a deal once PIA is farther along the approval process.
"We have a long-range relationship with Potomac Investment. They are first-class developers," Kelly said. "If they want us to look at a site, we're certainly going to do that. But it's impossible to say. We have turned down other sites that they have offered to us, and we have approached PIA with locations that they haven't been interested in."
Kelly said he once held discussions about building a PGA tournament course at La Jolla Valley with Glenn Terrell, majority stockholder of University Development.
Potomac and the PGA have already teamed up for one completed golf course-residential development called Avenel in Potomac, Md. The project, which is now the site of the annual Kemper Open golf tournament, also includes 850 housing units.
The PGA typically gets ownership of the courses free in exchange for its association with the residential developers. The prestige it lends to the developments enables the developers to sell upscale housing adjoining the golf courses at top prices. Potomac Investment, for example, gave the PGA land at Avenel worth about $25 million on which to build its golf course, Holloway said.
The Avenel project went so well for both parties that PIA and the PGA signed an agreement in 1985 to develop six additional "Avenel concept" golf-residential communities, Holloway said. Two of the six communities are in the planning stages, one of which is a project proposed for a 2,307-acre ranch owned by entertainer Bob Hope in Ventura County. If approved, the project three miles east of Thousand Oaks will include a PGA golf course and 1,848 housing units, Ventura County Planner Joseph Eisenhut said.
Potomac and partner Weyerhaeuser Co. have also proposed a golf course and 3,585 housing units for a 2,050-acre parcel in Snoqualmie, Wa., a suburb of Seattle, said Snoqualmie Planning Director LeRoy Gmazel. Weyerhaeuser owns the proposed site.
The PGA now operates 10 tournament courses, with an additional two under construction and three in the planning stages, Kelly said. The golf courses are part of the PGA's plan to own as many as 25 of the courses on which PGA tournaments are held by the turn of the century, Holloway said.
He said that if the La Jolla Valley course is built, the Shearson Lehman Hutton Andy Williams Open, which traditionally has been played at the Torrey Pines Golf Course, eventually will be moved there.