Lawsuits Reveal a Developer Trick for Assembling Big Projects

Growth and Housing

Lawsuits Reveal a Developer Trick for Getting Big Projects Together

Lawsuits involving Lilac Hills Ranch, a massive project in Valley Center, offer a peek behind the curtain at how big developments come together. The developer, Accretive Investments, pieced together land for the project using about 20 LLCs and LPs with different names.

Years into its effort to build Lilac Hills Ranch, a 1,700-home development in rural Valley Center, the project’s developer found itself in a lawsuit with one of its consultants.

Accretive Investments had been pushing to build the project on 600 acres reserved for farmland for seven years. Getting permission to build all those homes meant getting an exception to the county’s general plan – a blueprint to handle long-term growth.

In April 2012, the consultant, Hunsaker and Associates, sued Accretive, arguing it had been abruptly fired with an unpaid bill over $100,000. Accretive responded in kind, suing Hunsaker for intentionally undermining the project.

The dispute offers a peek behind the curtain at how major developments like Lilac Hills often come together.

In an attempt to make sure it got paid, Hunsaker took out a lien, a legal filing that would restrict the properties until Hunsaker was paid, on some of the properties it had worked on for the developer.

Accretive had purchased or entered into development agreements on more than 60 separate properties to piece together Lilac Hills. Hunsaker sent notices of its lien to these property owners, disclosing all the properties Accretive had evaluated as part of the project – and the company hadn’t publicly disclosed all of their plans yet.

That was confidential information, Accretive said, and hurt the company’s negotiating position.

Accretive bought or optioned all the property for Lilac Hills Ranch using LLCs and LPs – business structures with lower legal and financial risk – with more than 20 different names. Sometimes the company would strike an agreement using the name Covey Creek LP, other times as Birdsong Hills LP and others still as Macademia Groves LP. But in all those cases, the company buying or entering into a development agreement was Accretive.

Developers often do this – conduct transactions with companies that don’t bear their name – so land owners can’t figure out the offer in front of them is part of larger development plan, said Tom Muller, a law professor at UCLA.

“At the beginning, they disguise who they are,” said Robert Feldman, also a law professor at UCLA.
“They don’t want people to know that one group is trying to buy everything. They don’t want people to raise prices because they know they are a missing piece. ”

If the individual property owners knew the developer was looking to assemble a bunch of properties, they’d have leverage to raise their asking price

It’s also a good way to spread out responsibility for debts, lawsuits and other issues in case something goes wrong. For example, Accretive is suing a family that owns property in the Lilac Hills area, alleging the family’s septic tank polluted a nearby creek bed. The family says the lawsuit is an attempt to bully them into signing their property over. The lawsuit against the Hernandez family was filed by Shirey Falls LP. (Shirey happens to be the name of the road the Hernandezes live on, a road Accretive wants access to.) This means that Accretive is only risking the properties or finances held by that LP, and the whole project wouldn’t be on the line if they have to pay damages in court.

It’s a common practice in large developments. Multiple experts said it was perfectly legal and considered a good business practice. Sometimes investors even demand it.

“Everything we do, we do in a thoughtful way, including how we manage and maintain property,” said Randy Goodson, Accretive’s CEO.

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