Jeffrey Lubin blames the economy for Scripps’ collapse. “I never touched the money.”
"Speed is the name of the game,” boasted Jeffrey Lubin, head of a real estate lending operation, Scripps Investments & Loans, in a San Diego Magazine advertisement in September 2004. “We try to give real estate developers answers fast. We don’t fool around.”
Scripps was founded in 1999, expanded at a frenetic pace, and collapsed in the real estate crash of 2007–2008, leaving investors sadder and wiser, although many had raked in big bucks when the market was hot. Lubin acquired Scripps in 2001. “We were looking for a name recognizable in San Diego. We lucked out. ‘Scripps’ was available,” says Lubin.
It was a hard-money lender — one that charges inordinately high interest rates to borrowers and gives high returns to investors, whose capital supports the lending. Scripps paid 10 to 17 percent to investors while the giggle juice was flowing, as it loaned to developers in California, Arizona, Nevada, and elsewhere.
Lubin’s company made $1.3 billion in loans, including those in which banks participated, and had a network of 600 investors, many in San Diego. “For the first five years, everybody was making money hand over fist, but then the music stopped and [the market] took away the chairs,” laments Lubin.
As San Diego has learned to its sorrow, hard-money lending works great when the real estate market is sizzling but comes asunder when the market cools. In the 1980s and early 1990s, Pioneer Mortgage and Boileau & Johnson became Ponzi schemes after they collapsed and scrambled to stay afloat. Lochmiller Mortgage artificially inflated real estate values. Officials of each company went to the slammer.
Lubin asserts that Scripps was different: “The entities were independent to themselves. I didn’t commingle funds,” says Lubin. For example, there might be a condo project in Nevada. A group of investors would put money into it, getting a fat return, at least initially. If it never got off the ground, it would be up to those investors to try to keep it going, possibly with Scripps’ help, or swallow the losses without plunking in additional money. Scripps made money from assessment of loan origination and borrower forbearance fees, among other things.
When the wheels came off, some investors resented the fees, the bucks going out to lawyers, the requests for more contributions to save projects, and the like. “Investors in Bernie Madoff made out way better than Scripps investors; I hear the former got some money back,” says Gary O’Hara.
In one Arizona project, “The lender [Scripps] made more in loan origination and forbearance fees than the property is worth,” says New Jersey–based real estate consultant Amnon Cohen, who was brought in by investors to help rescue two projects. “Some of the losses were due to the economy, some to poor underwriting and greed, some to questionable due diligence, questionable acts. I spoke to investors who basically said it was too easy making so much money.”
Says an investor who lost well over a million dollars, “I never said Lubin was crooked, and I don’t think that’s the case. I do think he recognized what was happening and that he took steps that were to his benefit, perhaps at the expense of investors.”
Some investors cocked an eyebrow in 2005, when Scripps set up a $100 million mortgage fund that was a receptacle for pieces of other Scripps projects. Some suspect that a few loans going in there were already in trouble.
This million-dollar view comes courtesy of the $1.3 billion in
hard-money loans made by Scripps Investments & Loans.
Lubin denies that he did anything wrong, although there is one large judgment against him that he refuses to talk about. One lawsuit was settled out of court. One woman sued for fraud, but a North County judge said that she was a college grad, knowledgeable in real estate, who knew that an investment making 17 percent was risky.
The economy is to blame for his company’s downfall, says Lubin. “It was the market. I never touched the money. A third-party servicing agent collected the money.” Yes, Scripps profited from fees, “but that was fully disclosed [to investors]. It was our business model.” Nor does he feel that he expanded too rapidly: “I expanded with the market.” In hindsight, the market was off its rocker.
Lubin, who is clearly downcast, says, “I lost millions and millions.” So did other top Scripps officials; that can be verified by looking at investor lists. “I lost a headquarters building, a home, investment properties; I lost five properties.”
Scripps Investments & Loans headquarters at 484 Prospect, La Jolla
The former headquarters building is at 484 Prospect in La Jolla. Back in the 1920s, it served as a residence for nurses who worked at the adjacent Scripps Hospital, which in the 1980s was converted to an office/condo building. “Scripps Investments & Loans bought it for $9.2 million and put $1.5 million in it,” says Ben Tashakorian of Marcus & Millichap. The office had 40 to 50 Scripps employees until calamity hit. Comerica Bank, the lender, foreclosed and took over the building. “[Lubin] sort of squatted on the property; we had to go through a process to get him out. It took six or seven months.” Doug (Papa Doug) Manchester, iconic local developer, bought it and will convert it to a medical building. It’s now empty.
Although several of Scripps’ individual projects went into bankruptcy, the parent company never has. “It just kind of petered out,” groans Lubin.
Now there are Scripps corpses lying around the West. The company loaned $32.4 million for Vantage Lofts of Henderson, Nevada. Another lender had put in slightly more. But trades workers walked off the job, later returning. After the project was 75 percent complete, more financial troubles arose. “It is partially complete and not occupied,” says Lubin.
Scripps put $39.25 million of financing into Bachmann Springs, a proposed spa resort and golf course near Tombstone, Arizona. The golf course was partially completed but is not being used. The rest of the project never got off the ground. “It’s not a time to build nice vacation homes, second homes,” says Lubin.
Investors were scheduled to get 17 percent on French Valley Commercial Partners in south Riverside County. “It’s still raw land,” says Lubin.
The Vineyards is a project in Coachella. The south part, devoted to upscale motor homes, has some customers. Houses were built on the north part, but only a handful have been sold.
Scripps provided more than $38 million in financing for the planned Tuscan Hills development in Desert Hot Springs. Scripps foreclosed and bought the property. A Chinese investor planned to build houses that he would market to his fellow citizens who wanted a home in the United States, “but he failed, never built at all,” says Lubin.
And that capsulizes Scripps and the great American real estate crash.