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A long-derided construction project at 2269 Ebers Street in Ocean Beach, spearheaded by Curtis Nelson of Nelco Properties, officially suffered its death blow this spring; after failing to attract a buyer at a foreclosure auction, ownership of the property reverted to Center Street Lending, an Irvine-based hard money lender that specializes in providing financing to “property flippers” seeking to buy low, complete a quick remodel, and resell properties at a significant profit.

Matthew Suárez

Nelco’s ownership of the property – two short blocks off West Point Loma Boulevard and a block east of Sunset Cliffs Boulevard – was frequently controversial — at times the developer bragged on social media about his disregard for the coastal height limit, advertised his development as a two-unit property (it was permitted for only one residence), and drew fire from the community for allowing the property to fall into disrepair after illegal construction was halted by the city. But a dive into the financial history of the property offers an interesting look at how a simple fix-and-flip deal can go horribly wrong.

The original four-bedroom, two-bath home (right) and the expansion.

Matthew Suárez

Nelco originally bought the four-bedroom, two-bath fixer for $645,000 in mid-2015. The home, built in 1927, sits about five blocks from Dog Beach and nine blocks from Newport Avenue, OB’s main drag. Residents here tend to be quieter and more entrenched in the OB lifestyle than the younger, more transient denizens of the neighborhood to the west locals refer to as the “war zone.”

Frank Gormlie’s OB Rag news blog drew attention to the illegal construction

Matthew Suárez

San Diego’s multiple listing service indicates the home was paid for with cash, but that cash wasn’t necessarily Nelco’s. On the same day the sale was finalized, three separate loans were recorded against the property for a total of $949,000 — a full $304,000 more than the purchase price.

Experienced developers are often able to leverage other people’s money to fund their projects. That money, though, often comes at a high cost in the form of interest rates of 10 percent or more, compared to common conventional rates in the mid-4 percent range. Still, borrowing 147 percent of a home’s sale price is approaching exceptional, and we’re just getting started.

About 50 OB residents gathered to protest the project on October 15, 2016

Dave Rice

Most fix-and-flip loans have a short maturity date, say one year at the outside. It’s assumed that in this time a prudent developer will be able to acquire a property, draw plans, pull permits, complete a rehab, and re-sell the home, paying off the loan at the close. The developer usually makes only the interest payment during this time (unless payments are deferred entirely), but once the loan term is up the entire balance and any back interest is due and payable all at once. The industry term for this is a “balloon payment.”

By the time the first year ran out, the Ebers project was far from complete, though it had begun to draw the ire of immediate neighbors and others in the Ocean Beach community. Complaints were raised about safe environmental practices not being followed when asbestos-laden materials were removed from the original house, and locals began questioning what looked like an entirely separate three-story house being built on the lot.

“I first learned about the place in late June, early July 2016,” explains Frank Gormlie, publisher of the Ocean Beach-centric OB Rag blog. “Some neighbors had put up a sign and a mannequin wearing a mask to complain about the way demolition was being handled on the smaller existing house.”

After meeting with the neighbors, Gormlie’s site took on a muckraking role, digging up dirt on the owners, the project, and the city. His activities, Gormlie explains over a mug at the Newbreak coffeehouse on Abbott Street where he’s greeted as a local by staff and patrons alike despite having moved from the neighborhood earlier in the decade, would result in increased scrutiny from the local planning board and protesters taking to the street. The topic was his site’s biggest draw for nearly a year.

“We eventually came up with a laundry list of issues — first was parking and whether it met the floor area ratio [a regulation that restricts improved square footage of a building to 70 percent of lot size, significantly lower than in other San Diego neighborhoods], it looked like it was over 30 feet high. But as we looked into it, it turns out there were all kinds of problems. Was this truly an addition, or was it two units?”

The project didn’t appear before the OB Planning Board, which usually offers input on proposed construction in the neighborhood, because it was represented to the city as a remodel of an existing single-family residence in permit applications. Such a classification would have allowed the project to dodge a coastal development permit typically required of beach-area development.

Thing is, Nelco never saw the property as a simple single-family remodel. In a failed attempt to sell the property in early 2016, notes on the expired listing state that the property “will be re-listed once 2nd unit is completed.”

“When you went to Curtis Nelson’s website, there he was very proudly talking about two units. But this was never supposed to be a multi-unit development,” Gormlie argues. “You’ve also got to consider the role of the city’s Development Services department, and the allowances they’ll give developers. Someone was asleep at the wheel on this project to progress to the point you could go in, pull a permit, and a new structure going up three stories before the community wound up feeling so violated they started demanding oversight on their own.

“It turns out there were two sets of plans submitted that didn’t match — and [Development Services] was asked how these could have gotten through and their response was ‘Oh, well they must have been reviewed by different people.’”

Construction inched along, at least until one final interruption. On August 6, 2016, one year and two days after the original purchase loans were funded, a fire broke out on the third story of the “addition.” Though damages were reported at a paltry $1000, fire investigators suspected arson was involved. No suspects were ever named.

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