Pact to Save Monarch Beach Project : Firm Takes Over Nearly Half of Stein-Brief Land

Beverly Hills Savings & Loan Assn. has taken over nearly half of Stein-Brief Group’s giant Monarch Beach development as part of a complex financing arrangement designed to save the troubled development from foreclosure.

Mission Viejo-based Beverly Hills Savings & Loan received 170 acres, including most of the lots planned for residential development, in exchange for the approximately $30 million that Stein-Brief owed it under the former financing arrangement, according to Joe Grosz, president of Dallas-based Southmark Funding. In the process, Grosz said, Beverly Hills assumed an $18-million mortgage on the property.

Last week Stein-Brief announced that it had obtained $68.25 million in new financing from the Southmark Mortgage Corp. subsidiary of Southmark Corp., a Dallas-based real estate and financial services network. Southmark Funding is also a subsidiary of Southmark Corp. and negotiated the loan. Stein-Brief has repeatedly refused to divulge any of the terms of the financing.

However, Grosz said in an interview Wednesday that after the transaction Stein-Brief owns only 230 acres, or roughly 57.5% of the 400 remaining undeveloped acres in the Monarch Beach project.

He said Southmark so far has loaned Stein-Brief $32 million to satisfy debts on that property.

Two years ago, Stein-Brief purchased the entire 550-acre Monarch Beach property from Avco for about $80 million. The project’s development was stalled, Grosz said, because Stein-Brief encountered delays in obtaining government approvals of its subdivision plans and because it ran out of construction funds.

Pact Satisfies Debts

Stein-Brief has been struggling to secure a new financial source since December when it defaulted on a $4.3-million installment payment due Avco Community Developers. The financing agreement reached last week, Grosz said, satisfied Stein-Brief’s debts of $49 million to Avco, $30 million to Beverly Hills and $2.5 million to Western Savings & Loan.

Grosz said about $22 million of Southmark’s $68-million commitment of new financing to Stein-Brief is to pay for future construction. He said the rest of the money will be paid to Stein-Brief in installments as development progresses. He said Stein-Brief will receive no money from the loan to finance day-to-day administrative functions.

Southmark’s loan is secured by Stein-Brief’s remaining 230 acres, which Grosz said contains a coastal building site for a 550-room hotel expected to be managed by the Chicago-based Hyatt Corp., a shopping center, an 18-hole golf course, a beach club and 101 lots for oceanfront homes.

Grosz added that David Stein and Barry Brief, the principals in the Stein-Brief Group, also have assumed personal liability for the loan and have put up as collateral a number of commercial projects that they jointly own, along with other assets, including some oceanfront lots where Stein hopes one day to build a family compound.

Grosz declined to say what interest rate Stein-Brief is paying on the loan, other than to describe it as “fair.” He said that in addition to repayment of principal and interest, as a “kicker” Southmark insisted on receiving 30% of any profits that might be generated by development of Stein-Brief’s property.

Southmark is very optimistic about potential profits from the Monarch Beach project, Grosz said. “We feel it is probably the best piece of land left in California,” he said.