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Land deal builds dream

City: Court finds settlement ‘fair’ between Santa Clarita and company that owns Whittaker-Bermite

Posted: November 28, 2010 10:40 p.m.
Updated: November 29, 2010 4:55 a.m.

Close to a thousand acres in the heart of the Santa Clarita Valley are still uninhabitable — the soil still contaminated with traces of explosive material and the water still dirty with perchlorate. But city planners are happy today over a court settlement that will save them about $5 million in the long process to, one day, make it fit to live on.

Last week, an Arizona bankruptcy court endorsed a settlement agreement reached between the city of Santa Clarita and RFI, the bankrupt company that owns the land.

The court found the agreement to be “fair, equitable and in the best interests of the Debtors, the bankruptcy estates and their creditors, and is a reasonable exercise of the Debtors’ sound business judgement.”

The agreement, and the dispute that sparked it, involves two relatively small pieces of the Whittaker-Bermite property — the parking lot at the Metrolink Station on Soledad Canyon Road and an 8-acre stretch of land along Golden Valley Road near Center Pointe.

The dispute over these two sections of land would have originally cost the city of Santa Clarita more than $30 million to resolve.

The court ruling handed down Nov. 22, ends the 10-year-old dispute over these relatively small lots of land and gives the debtors $25.3 million payment for existing liabilities.

For city planners, last week’s ruling saves them about $5 million, closes the books of two ongoing lawsuits and gives them a valuable option to buy the balance of an outstanding promissory note still attached to the property.

But the reason city planners are so happy is that the settlement proves to all involved — including everyone on both sides of the fence running through these 1,000 acres of suburban badlands — that progress, although slow, is still possible.

For more than a decade, the Whittaker-Bermite site — because of its alluring strategic location in the heart of the valley — has attracted many investors, money lenders, planners, insurance company executives, government agency cleanup supervisors and, last but not least by a longshot, lawyers.

“We can dream big on this,” said city spokeswoman Gail Ortiz, reflecting on the prospect that one day the city will have 1,000 acres of clean prime real estate in the center of a community filling quickly.

A colorful (noisy) history
For anyone living in Newhall at the turn of the century, having grown up with the filming of silent screen Westerns, the hills east of San Fernando Road became anything but silent.

By the mid-thirties, the Los Angeles Powder Company was manufacturing dynamite in those hills, north of Sierra Highway and south of Soledad Canyon Road.

Then, in 1936, the Halifax Explosives Company moved in and spent the next six years making fireworks.

After that, it was explosives made for oil fields.

From the start of the World War II to the height of the Vietnam War, specific wartime chemicals were developed — from coated magnesium flash flares and red phosphorous, to detonators and fuses.

Following the Vietnam War, the Whittaker Corp. continued manufacturing ammunition rounds, boosters, more flares, more detonators, signal cartridges, glow plugs (used to heat the combustion chamber of diesel engines in cold conditions), tracer and pyrophoric pellets (fragments that spark spontaneously), igniters, ignition compositions, explosive bolts (designed to separate cleanly along a set fracture), powder charges, rocket motors, gas generators and missile parts.

It wasn’t until 1987 — after a half century of blowing stuff up — that the hills quieted down.

Whittaker Corp. stopped manufacturing and testing explosives.

Two years later, as Santa Clarita Valley blossomed into a nice place to buy a home and raise a family, visionary city planners drafted a plan to build a 2,911-unit residential community in the hills.

They called their vision Porta Bella.

In 1999, Whittaker sold the property to RFI Realty Inc., which later declared bankruptcy in July 2004.

Whittaker, cited for having withheld crucial information in its reports by the Department of Toxic Substances Control, was then ordered to clean up the site.

Despite growing cleanup costs, the prospect of one day having 1,000 acres of pristine real estate in the heart of Santa Clarita Valley remained appealing to some.

Land developer SunCal Santa Clarita, together with Cherokee Investment Partners, offered to buy the land.
But, in September 2008, RFI  terminated that purchase agreement.

The city’s vision of Porta Bella, with its green plan of paseos and parks, was fraught with mounting problems, lawsuits and discord.

The list of interested, yet frustrated, parties continued to grow while the cleanup struggled to keep pace.

The list of stakeholders includes:

* the original 1989 Porta Bella Development planners.
* Porta Bella’s consortium of at least 35 individual investors, which provided RFI with about $30 million in “bridging money” to bridge the time gap between cleanup and development. Since the money was pledged at a high interest rate and the cleanup has “dragged on,” that investment has now doubled to about $60 million.
* Whittaker Corp., which is still responsible for the cleanup.
* RFI, bankrupt landowner.
* Phoenix-based Avion Holdings LLC, which now acts as RFI’s administrator.
* primary lien holders, consultants Knight Piesold Consulting and Kanoe, each firm awaiting payments totaling about $3 million.
* secondary lien holders, the New Jersey-based Gallagher & Kennedy which loaned money to RFI when it first bought the land.
* Steadfast Santa Clarita Holdings LLC, which acquired the Kennedy promissory note for $33 million.

“All the liens are still in place,” said Paul Brotzman, director of community planning for the city of Santa Clarita. “Today, who knows what the land is worth.”

Golden Valley Road
Shortly after RFI purchased the 988.5 acres from Whittaker Corp., city planners acted on a need to build the Golden Valley Road, connecting one end of Santa Clarita Valley with the other end at Sierra Highway.

The city filed eminent domain court papers to acquire about 8 acres on the eastern edge of the Whittaker-Bermite site near Center Pointe in order to build the road.

RFI argued in court that “severing” the land would devalue the development and asked for $100 million in damages.

In 2005, Los Angeles Supreme Court jury ruled against the city and deemed the 8 acres were valued at about $13 million. But the city was also ordered to pay RFI’s legal fees totalling $7.1 million.

At the end of the day, with interest included, the city of Santa Clarita was looking for ways to pay a $22 million judgement.

The city appealed.

The 8 acres of Golden Valley Road, however, were not the only contested piece of Whittaker-Bermite property.

Metrolink parking
After the 1994 Northridge earthquake, city planners also saw a need to bolster public transit by enhancing the Metrolink connection running through the Whittaker-Bermite site.

“We needed parking for that Metrolink,” Brotzman explained.

The city again appealed to the court with another eminent domain claim in order to acquire rights to use the tiny lot of land as a parking lot for Metrolink commuters.

RFI gave the parking privilege a price tag of about $7 million.

“When you file eminent domain, you have an obligation,” Brotzman said. “You can take possession of the property but you’re obliged to pay the land value.

“We couldn’t walk away (from the deal) because we needed the Metrolink,” he said.

The total cost to the city for both the 8 acres of Golden Valley Road and the right to use the Metrolink parking lot came to about $30 million.

On Nov. 22, the United States Bankruptcy Court for the District of Arizona accepted a settlement agreement between RFI Realty Inc. and the city of Santa Clarita whereby the city pays $25.3 million instead.

Of that, $20 million is paid to Steadfast Santa Clarita Holdings LLC, to reduce the balance of the allowed Kennedy Secured Claim and its balance, $5.3 million, to be paid to Gallagher & Kennedy for legal expenses.

“When we negotiated this settlement, we closed two cases and we secured credit for paying $20 million against the Kennedy note and we obtained a one-year option to buy the (balance of) the Kennedy note,” Brotzman said.

About $13 million remains on the Kennedy note held by Steadfast.

The city has until December 2011 to pick up the option.

If it does, the city invests more heavily on a property still dirty, still costly and still years away from completion.

“If we do pick up that option,” Brotzman said. “That property is now no longer anything near worth $100 million.”

Half-century job

It took more than half a century to contaminate the Whittaker-Bermite site with traces of phosphorous, perchlorate, gunpowder, fireworks and dynamite, and it is expected to take another half-century to clean it all up, planners said.

The cleanup process monitored by Department of Toxic Substances Control is taking place in stages.

It is divided up into seven areas of specific cleanup tasks.

The first of those areas is expected to be cleaned up by the end 2012, leaving six more to go.

“Test area OU-1 is now clean but it will take another 12 to 18 months to be officially clean,” Brotzman said.

“The bigger burdens under the development agreement, is still in cleaning the soil,” he said. “To have it fully cleaned for the soil side will be three, four, five, maybe six years. Then there’s the water cleanup.”

The Castaic Lake Water Agency has wells in place to effectively remove harmful perchlorate in local water accessed outside of the Whittaker-Bermite site.

Cleaning up the water on the site itself, however, is expected to take several more years after the soil in all seven areas is cleaned.


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