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Inside a high-end real estate deal gone bad

The placid panorama at the Bridges at Rancho Santa Fe belies the bruising battles among its developers. The cast includes a home-building titan, a bankrupt La Jolla deal maker and a con man-turned-preacher.

June 25, 2011|By E. Scott Reckard, Los Angeles Times
  • The Bridges at Rancho Santa Fe, a development in San Diego County, features opulent homes, a private golf course and a troubled back story.
The Bridges at Rancho Santa Fe, a development in San Diego County, features… (Don Bartletti, Los Angeles…)

Scattered across 540 acres of San Diego County hills and ravines, the 235 opulent homes of the Bridges at Rancho Santa Fe flank a private golf course and country club with tile-roofed towers inspired by Tuscan villages.

The placid panorama belies decades of bruising battles among the project's developers. The cast includes home-building titan Lennar Corp., a bankrupt La Jolla deal maker and, in an improbable late entry, con man-turned-preacher Barry Minkow.

The dispute ultimately led to a federal criminal conviction against Minkow and a continuing investigation by the Justice Department. But it all began here, at a classic Southern California home development that promised riches for its partners but ended up exacting a high price on the key players.

The court filings offer a rare glimpse into the inner workings of a high-end real estate deal gone bad.

Lennar, the venture's main financier and manager, says it lost $50 million on the Bridges in spite of the custom-built mansions and expensive tract homes gracing its hillsides. Sales soared during the housing boom, but by 2009 the company was moving only one home every two months, San Diego real estate consultant Russell Valone said.

"Lennar did not go into this project thinking they were going to sell half a unit a month," said Valone, the president of MarketPointe Realty Advisors. "There's no way they planned on being there that long — they're a public company and they want to get that money back and put it to work."

At the center of the wrangling is Lennar's partner at the Bridges: Nicolas Marsch III, 64, of La Jolla. A native of Chicago, where his family was in the construction business, Marsch took the helm of the enterprise in the 1970s and set out to make his fortune as a developer in California and Colorado.

Marsch ultimately set his sights on Rancho Santa Fe, 25 miles north of downtown San Diego. Described by CBS sportscaster and former resident Dick Enberg as "Beverly Hills in the country," the very private suburb caught the world's attention in 1997 when 39 cultists at a rented mansion poisoned themselves in expectation of ascending to a spaceship.

Marsch had purchased much of the Rancho Santa Fe land by the early 1980s. He launched the project he then called Horizon Country Club in 1985, in a partnership with a wealthy Northern California developer, Ronald Williams.

The partners had a falling out in 1988, court records show, with Marsch accusing Williams of withholding funds for Horizon to pressure Marsch into selling out cheap.

By 1990, work had shut down. The site sat fenced off for most of the decade as the pair battled in court — and were sued in turn by business partners who said they had been stiffed, including the noted golf course designer Robert Trent Jones Jr.

When the court dust settled, Williams ended up with the property, which he seized as collateral for defaulted loans, and Marsch ended up with a $37-million judgment against Williams. To buy out his partner and revive the project, Marsch needed more financial muscle — and found it in Lennar.

Miami-based Lennar began looking for joint ventures in California in 1995. By the end of that year it was talking to Marsch, who brought a local developer's edge: a ground-level view of the project and familiarity with the power brokers who ultimately authorize developments.

Marsch's dealings with San Diego's power elite went back decades: He had sold a Breckenridge, Colo., ski condo in 1979 to a group including Roger Hedgecock, a county supervisor and later San Diego mayor who wound up convicted for his role in a campaign-finance scandal.

The group paid less than market value for the condo and soon sold it at a big profit, the San Diego Union-Tribune reported in 1984. Hedgecock and other supervisors voted to reduce development in parts of the county's Alpine area, but not where Marsch owned property.

No formal allegations of wrongdoing emerged in the case. Hedgecock, now the host of a nationally broadcast radio talk show, declined to comment on the condo deal or Marsch.

The development deal struck by Marsch and Lennar, like many other projects expected to take years before becoming profitable, included front-end fees to compensate the organizers in the earlier years.

Beginning in 1999, Marsch enjoyed a hefty income stream from the Bridges, including $310,000 a year in developer fees, plus 3.5% of every lot sale, home sale and club membership, and a smaller fraction of home resales, a San Diego Superior Court judge wrote in summarizing the case. Lennar also agreed to cover a host of Marsch's expenses, including his legal tab for suing Williams, debts to previous investors and the taxes owed on earnings from the Bridges.

Lennar and Marsch agreed to split any eventual profits 50-50 — but only after the home builder had recovered the hundreds of millions of dollars in capital it had poured into the deal, plus 25% interest a year.

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