For decades, financial carpetbaggers have pulled the wool over the eyes of the citizens of Borrego Springs, the unincorporated desert town of 2600 full-time residents in northeast San Diego County. Now Borregans hope that a financier closer to home, Encinitas’s Russell Geyser of Geyser Holdings, will clean up the scummy residue, including delinquent taxes, back homeowner association fees, and defaulted water bonds at the town’s gated housing development, Montesoro Golf & Social Club.
Montesoro “has had so many messes,” concedes Linda Haddock, executive director of the local chamber of commerce, who stands to gain personally from the cleanup attempt. But she understands why scarred residents are so skeptical.
Borrego “has had a real run of very bad luck or bad ownership with poor vision or strategy,” says San Diego hotelier Jack Giacomini, who has been looking at one property there. Borrego Springs lacks a nearby expressway for easy access. “Investors think it is too remote.” And it has been afflicted by speculators “trying to buy inexpensive land and sell expensive lots” — in short, fast-buck real estate flippers.
Late last month, Geyser Holdings, which has a portfolio of $400 million in real estate assets, closed escrow on the 3100-acre Montesoro for an undisclosed price. Beginning in the early 1980s, under the name Rams Hill, this was planned as an 800-home, largely upscale development with a championship golf course. But it was beset by one scandal after another, and much of the land went undeveloped.
Geyser is initially focusing on selling 140 finished lots at a discount of around 65 percent. The lot buyers will pay the back taxes and homeowner fees, but Geyser expects to absorb those costs, in effect, by slashing the prices. He says, “We may end up accepting offers much lower; prices may be discounted 75 to 80 percent. One way or another, the back taxes and [homeowner association] fees will be paid. I was picked to stave off the bondholders,” who could try to take over the place. Geyser has already cured bond delinquencies on some of the lots and is negotiating with the company representing the bondholders.
He expects that a Borrego resident will buy the golf course, now closed, along with other leisure amenities such as the clubhouse, tennis courts, and swimming pool. The purchase of the sports properties is “pretty much of a done deal,” although escrow has not closed, says Rick Vesci, who is spearheading the Montesoro sales effort. Another local resident is negotiating to buy the adjoining resort, formerly named Casa del Zorro. It is now shuttered. That purchase is “not a firm deal” now, says Vesci.
“Montesoro is a tough project” to sell, allows Vesci. He gave his pitch unsuccessfully to such developers as Del Webb, Shea Homes, and the Trump Organization. (The Donald sent one of his vice presidents.) Nobody was interested until Geyser stepped forward.
One reason may be the stench of past shenanigans. In the early 1980s, the Di Giorgio Corporation, then based in San Francisco, had grand plans for Rams Hill. But Di Giorgio had too much debt, along with other troubles, and sold out to San Jacinto Savings Association, a unit of Southmark, a Dallas conglomerate. That was disastrous. Southmark and affiliates were financed with junk debt from Michael Milken’s machine. Southmark purchased everything it could get its hands on through subsidiaries such as San Jacinto. Southmark did business with characters such as Charles Keating of Lincoln Savings & Loan and the late, notorious Morris Shenker, lawyer for mob-financed deals in Vegas — and also one who provided tainted money for San Diego’s growth. Southmark went bankrupt, and San Jacinto was seized by the federal government, which also charged a Southmark founder with racketeering and other sins.
Rams Hill was bought by Western United Life Assurance, which was placed under receivership by the state of Washington. The Borrego property filed for bankruptcy in 1994 and again in 2002. Then it went into receivership. In 2004, Sherman Oaks–based GH Capital and a group of its investors bought Rams Hill and, in 2007, the adjoining Casa del Zorro, which had been losing $5 million a year under the ownership of former San Diego newspaper publisher David Copley.
The swashbuckling investors made other purchases around Borrego Springs. They changed the name of Rams Hill to Montesoro and Casa del Zorro to Borrego Ranch Resort & Spa, paying $14.5 million for the two properties and plunking $25 million into them. In early 2010, at the height of the tourism season, the ranch and golf operation closed down, each losing more than $200,000 a month, and went on the market. So did other projects that the GH investors had pushed. People were laid off. Unemployment soared. Tempers flared. “We have been through it all,” sighs Katherine McHenry, who has lived with her husband at Rams Hill/Montesoro since 1986.
The bitterness escalated as one developer after another wouldn’t touch Montesoro or the ranch/resort. Then this spring, Geyser sprung on the scene. Initially, the homeowner association thought any new buyer would pick up delinquent dues — which are $250,568 on the properties Geyser purchased. Then the association was surprised to learn that payments were to be made incrementally as (and if) the lots sold. “[Geyser] says he will [pay the arrears], but we have no assurance,” says Blythe Cavanaugh, treasurer of the homeowner group. “I have seen owners come and go. I could not begin to predict what will happen.”
This summer, discounted build-ready lots will be offered to developers and Borrego Springs residents. Until the end of July, the Borrego Springs Chamber of Commerce gets 10 percent of sales. Haddock, the chamber’s manager, helps sell lots for Vesci, who doubles as the chamber’s treasurer. Some cock an eyebrow at that arrangement, but Haddock says she has a license and everything has been fully disclosed. “In small towns people wear a lot of hats,” says David Schaack, president of the Montesoro homeowner association.
Borrego is not a high-income town, and many people doubt that locals will line up to buy the Montesoro lots. Haddock thinks at these low prices, developers will. One long-range problem is that no homes can be built on undeveloped lots until a new fire station is built, says John Hardcastle, local fire chief. The ready-to-build lots don’t have that problem.