Where did Hurst’s Beacon Road money go?
July 9, 2008
By DANIEL BLACKBURN and KAREN VELIE
Investors wooed by Atascadero hard money lender Hurst Financial’s owner Jay Miller raised $414,000 of an apparent $485,000 loan to help fund a new North County commercial park, but learned within four months that only $198 remained in the investment account. Construction on the Kelly Gearhart/Miller project was never started.
And even as the fund money was paid out by Miller’s Hurst Financial to a variety of other recipients not involved in this particular project, the 28-unit “Beacon Road Project” was allegedly conceptually evolving, unbeknownst to investors, from a commercial park into a recreational vehicle storage lot.
The torturous path of monies invested in the Beacon Road Project may provide some transparency for other hard money lending schemes now coming to light around San Luis Obispo County, many of which are already impacting thousands of investors, builders, subcontractors, building supply providers, and landowners.
Miller solicited and collected investments from eight individuals between Dec. 3, 2007 and Feb. 26 of this year, ostensibly to provide construction funding for the commercial park. However, according to data provided to investors by Miller’s Costa Mesa attorney, disbursements quickly went in a much different direction.
(Detailed financial records were yielded by Jeffrey S. Benice, Hurst Financial lawyer, after a formal request from investor Pete Evans of San Luis Obispo. The records contain a day-to-day accounting of deposits and names of investors in the Beacon Road Project, as well as a complete list of dated disbursements.)
Within a week after the first investor’s money went into the Beacon Road Project fund, according to those records and a cover letter from Benice, Hurst Financial was apparently writing checks to itself, reportedly to pay interest to a variety of other investors on previous loans for unrelated projects. As additional investment money came into the fund, additional interest payments were made by Miller to, among others, developers on Hurst-funded projects such as David Graves and Royce Eddings, and to projects such as “Navidad” and “Las Tablas.”
The payment procedures often came close to depleting the fund. And just three and a half months after the first investment, the fund had been drained. Nearly $360,000 had been paid out of Hurst’s loan escrow account in recorded interest payments.
As of June 17, according to attorney Benice, the fund contains $198.12. Virtually none of the fund’s proceeds have gone toward construction of the Beacon Road Project, Miller’s own records indicate.
Shortly after the fund shriveled, Miller informed investors they would no longer receive interest payments due to them, citing their agreements with Hurst Financial.
“I anticipate that we will break ground on the project within the next 60 to 90 days, providing we don’t get additional corrections [or] requirements from the city of Paso Robles,” Miller said in an April 25 letter to Evans regarding the Beacon Road project. “In the meantime, we must ask for an interest forbearance of six months from the date of this letter while we finish working with the city and begin construction. My primary cash flow concern at this time is to keep Hurst Financial functioning during these difficult financial times.”
A financial accounting indicates Gearhart received only one Beacon Road check from Hurst Financial, for $58,450, identified as an “interest payment.” That check was written Dec. 26, 2007, and was made out jointly to Miller and Gearhart. Benice, Miller, and Gearhart did not return phone calls from UncoveredSLO.com.
Benice, in a June 20 letter to Evans, said the planned commercial park had “encountered significant entitlement and traffic issues… and the developer [Gearhart] reconfigured the project as an R.V. storage facility.”
“This was the first time I heard about the change,” said Evans.
Benice claimed some costs associated with the Beacon Road Project have been paid, including entitlement application fees; property taxes; a biological report; and pending landscape and civil engineering plans. He said Gearhart “anticipates that a building permit will be issued within 180 days.” Benice failed to list expenditures regarding those claims in the Hurst escrow account custom transaction detail report he provided.
Gearhart’s plans as described by Benice were met with skepticism by investors.
“Hurst represented that this investment would fully fund the construction of this project,” said one. “How do they propose to carry this project on to completion now that the proceeds for our loan have disappeared?”
“The accounting records obviously indicate that Hurst has failed to abide by any sort of required construction loan agreement and related draw schedule, and has obviously disbursed the entire proceeds of this loan without any construction whatsoever being performed on the project,” the investor added.
There are apparently 28 lots comprising the Beacon Road project, and Hurst investors have apparently funded each lot for $485,000. Many of the lots were originally funded in 2006. Two years have passed but no building permits have been issued.
Both the state Department of Corporations and the Department of Real Estate have ongoing investigations into Hurst Financial management practices.
According to Hurst Financial’s Web site, the company is a “no risk, no hassle, no worries, note serving and collection specialist.”