Gearhart’s $28 million Paso project imperiled
April 29, 2008
By DANIEL BLACKBURN and KAREN VELIE
It’s only a few second’s drive time between the weathered plywood sign on Paso Robles’ Jardine Road announcing the imminent approach of “Vista del Hombre,” and its equally unimpressive, unmarked entrance, but that brief moment is sufficient to show passersby that they have encountered one truly unremarkable piece of real estate.
What is remarkable, though, is that hundreds of local investors have put big money and faith into Hurst Financial of Atascadero, and in turn into Vista del Hombre — approximately $28 million already for this project alone — yet have seen only minimal progress on the Kelly Gearhart golf course-business park development over the past several years.
Hurst has doled out to numerous investors approximately 8,000 percent beneficial interest in the planned 32-building development, according to the title report. It appears that investors hold more than 200 percent interest in each structure.
“It’s the lender’s responsibility to make sure beneficial interest adds up to 100 percent,” said one local escrow officer. “You see a lot of this with Hurst and Estate Financial title reports.”
And now recent developments, including both a looming recession and what may prove to be misleading reports of progress on the project, are casting foreboding shadows on the very future of this once-ambitious project.
Just a few months ago, Gearhart was maintaining an optimistic public front regarding Vista del Hombre. In a letter delivered to investors, Gearhart reassured stakeholders that project requirements of the city had been satisfied, and then asked for an extension of 24 months to allow him to “market and sell units.”
He even enlisted the help of a local daily newspaper to validate his “progress” claim.
“This letter is written to update you as to the progress of my major project, Vista Del Hombre, located in Paso Robles,” Gearhart wrote in the letter. “I have attached to your information an article from a recent San Luis Obispo Tribune story. As the article states, the first phase of the overall project is slated for completion by mid-2008. We have installed the entire infrastructure per the city of Paso Robles requirements including a road from the project site all the way to Aerotec Road. This creates an easier pathway.”
However, Gearhart has not yet submitted plans to the city for the required conditions of approval, which include two large expenses — connecting to the city’s sewer system roughly two miles away, and repaving approximately two miles of Dry Creek and Aerotec Roads. Conditions of approval are required prior to occupancy, said Paso Robles City Engineer John Falkenstien, who confirmed that Gearhart’s development currently is not approved for occupation.
“Buildings associated with the golf course, such as the clubhouse, fall under past approvals,” Falkenstien said. “We have approved plans for three buildings for the golf course. We have not approved conditions of use plans for any of the tract.”
Also of growing interest to some Hurst Financial investors is the seemingly cavalier manner in which huge amounts of their money have been doled out based on incomplete and apparently unverified loan application forms.
Neither Gearhart nor Hurst’s Miller have yet responded to telephone calls and detailed e-mails from UncoveredSLO.com asking for explanation or clarification.
Gearhart, a major North County developer, recently stopped making interest payments on many of his Hurst Financial loans. That includes payments to Vista del Hombre investors. Some investors have expressed concern that recouping their principal may be impossible.
The developer owns or controls interest in approximately 100 San Luis Obispo County properties, according to tax and escrow records. Those records suggest that many of Gearhart’s properties are financed well beyond their value.
Gearhart purchased the 35-acre parcel incorporating The Links in 2006 for about $2 million, according to sources. Experts interviewed for this article estimate the property’s current value at no more than $5 million. UncoveredSLO.com talked to escrow and title officers, individual local investors, contractors, and lenders during the article’s preparation.
Located six miles east of downtown Paso Robles, the “new” Vista del Hombre project is on the site of The Links golf course, a flat, dust-blown, tree-bereft expanse of land situated a stone’s throw from the airport. Looking more like a property on the decline than a multi-million-dollar development-in-progress, Vista del Hombre begins with a blacktop road winding through the existing golf course, which was opened in 1996. The narrow road terminates at a group of drab, temporary buildings featuring Porta-potties and a small trailer which houses both a pro shop and a cafeteria.
The Links is promoted on its Web site, www.linkscourseatpaso.com, in a much more colorful manner: “Designed in the tradition of the historical Scottish layouts like St. Andrews and Royal Lytham, The Links at Vista Del Hombre is both fun and challenging for any level of golfer. Four sets of tees accommodate the novice and challenges the advanced player. The Links at Vista Del Hombre is in the heart of the California’s Central Coast wine country. Surrounded by vineyards, The Links Course is just minutes away from wine tasting at its best.”
Some of Gearhart’s investors say they have been informed that the entire project is just “months away” from completion.
However, most of Vista del Hombre’s commercial zone remains vacant land. Three larger steel buildings have been erected near a driving range. Plans –- yet to be approved by city officials — call for eventual construction of the 32 buildings within a 14-acre expanse.
Earlier this month, Gearhart admitted to some investors that he is financially strapped and unable to pay interest on many of his Hurst loans. Numerous investors claim they stopped receiving interest payments months ago, and no principal has been recouped.
In an April 1 letter to investors, Gearhart detailed his plan for financial recovery:
“Obviously, I have formulated a detailed strategy to work my way through liquidating my large portfolios,” Gearhart wrote. “Several of my properties are in escrow at this time, and the sales of these properties will enhance my ability to move forward. I realistically see only these options at this time: 1. Elimination of interest payments, while I work to liquidate properties as fast as possible. 2. As offers are made on properties, I will notify you and we will make a joint decision as to whether we should accept the offers presented. 3. Foreclosure.”
A closer look at the funding methodology involved with Vista del Hombre — considered by Gearhart to be his “major” project –- offers clues about some hard-money lenders’ extraordinary management of investment funds entrusted to them.
(The ongoing woes of another hard money lender, Estate Financial of Paso Robles, have been detailed in a number of UncoveredSLO.com articles beginning March 14.)
Gearhart got his first loan for Vista del Hombre’s purchase and initial infrastructure construction in May 2006 from Atascadero Realtor Jay Miller, owner of Hurst Financial, in the amount of $15 million. Miller in turn had secured that money from private investors lured by promises of high interest returns and placated by Miller’s pledge of a loan-to-value ratio of 44 percent, according to one loan agreement. Translation: the hard money loan could fund no more than 44 percent of the project’s total value. That initial loan was slated to mature in late 2006, but Hurst has not reimbursed investors and ceased providing interest payments.
But by then, Hurst had already lent Gearhart another $11,850,000 for the Vista del Hombre development – escalating Gearhart’s annual interest payments to $4 million. That pact was inked on June 22, 2007, after Hurst attracted more than 100 investors with the same loan-to-value promise. These investors received interest payments for only six months before the payments abruptly ceased.
It apparently wasn’t hard for Gearhart to get the two loans, documents obtained by UncoveredSLO.com show. In his loan applications to Hurst, Gearhart’s reported monthly income and expenses varying dramatically from loan document to loan document.
According to the first Vista del Hombre agreement in 2005, Gearhart claimed a salary of $31,667 a month. Another Hurst agreement dated January 14, 2008, set Gearhart’s monthly income at $240,000. Two weeks later, according to yet another Hurst contract, Gearhart’s income had dropped to only $138,000 a month. Most of the other information lines on the loan applications, copies of which were supplied to investors only after repeated requests, contained no information.
Tags:, Gearhart, Hurst Financial, Paso Robles