Campus at Horton lender seeks court-appointed receiver to control property

The lender behind The Campus at Horton project is asking a local judge to immediately strip developer and property owner Stockdale Capital Partners of control of the property as it seeks to protect the asset during the foreclosure process.

Luxembourg-based investment management firm AllianceBernstein filed a civil suit in San Diego Superior Court on Wednesday seeking a court-appointed receiver to take possession of the property from Stockdale. The complaint also requests an order to force the turnover of all documents related to the property, as well as a temporary restraining order preventing the developer and its partners or affiliates from interfering with the receiver’s work.

The complaint comes as the lender seeks to recover hundreds of millions of dollars in unpaid debt from the developer through a nonjudicial foreclosure process. The property is currently scheduled for public auction on July 7, but the date has been pushed back three times without explanation and could be further postponed.

In a statement, Stockdale Capital Partners said the developer and AllianceBernstein are in agreement on the court-appointed receivership.

“This was a mutually agreed to next step toward a long-term solution that is beneficial to all parties,” the firm said in the statement. “The purpose of the receiver is to assist the two parties in negotiating a long-term solution while maintaining the integrity of the asset.”

Gordon Gerson, a commercial real estate lawyer, said the nature of the legal filing suggests that the parties are indeed negotiating a resolution, however there are likely required benchmarks.

“Reading between the tea leaves, the foreclosure is going to be extended for a prolonged period of time,” said Gerson, whose firm Gerson Law represents lenders in foreclosure and bankruptcy proceedings. “But the lender does not want the borrower in control of the property.”

The complaint hints at an initial, two-month resolution period. It states that the receiver will hire Stockdale’s management company for help with property management work for a 65-day period. The receiver will also need to get approval from Stockdale and AllianceBernstein during the same time frame if it wants to terminate any of the existing retail lease agreements.

The Campus at Horton is the reincarnation of Horton Plaza, the 1980s-era, post-modern mall famous for helping to revitalize downtown. The 10-acre property consists of seven blocks between First and Fourth avenues, starting with Horton Plaza Park along Broadway to the north and cascading south to G Street.

In August 2018, Stockdale purchased the retail center for $175 million. The following year, the developer was granted approval to convert the mall into a mixed-use campus with 772,000 square feet of office space and 300,000 square feet of retail.

In March 2020, Stockdale took out a $328.5 million loan from AllianceBernstein to fund construction of the mall-to-office conversion project. The loan amount was later increased to $398.5 million with a balance due date of July 10, 2024, according to a February notice of default recorded against the property.

As of May 10, the outstanding balance on the loan was $367.5 million, with interest continuing to accrue, according to the lawsuit.

The February notice of default marked the start of the foreclosure, and the property was originally scheduled to be sold at auction on June 2. Trustee sale dates can be extended weeks at a time for up to one year.

In its newly filed civil suit, AllianceBernstein lawyer Betty Shumener wrote that the firm is seeking to safeguard the campus property from water damage and fulfill some of Stockdale’s legal obligations with the city of San Diego related to the Lyceum Theatre. The firm does not want to give Stockdale money to do the work.

“Given that construction at the property has not been completed, recent rains have caused damage to the property and the Lyceum Theater (sic), necessitating the immediate appointment of a receiver to protect and preserve the property with the lender considering providing advances to do so only if a receiver is appointed,” the complaint states.

The firm’s construction consultant, Sterling Project Development, has observed water damage to the Lyceum, as well as incomplete waterproofing of planter boxes elsewhere around the property, and there are concerns about structural problems, according to the complaint.

“The lender is only prepared to consider funding the remediation of the property issues described … upon appointment of a receiver,” the suit says.

The Campus at Horton property is further complicated by a number of factors, including a lease agreement with the city for the connected Horton Plaza Park property.

In December 2022, Stockdale signed a 25-year lease for the city-owned, urban park property at 900 Fourth Ave. The firm is required, per the lease, to spend a minimum of $5 million on improvements. Stockdale is also contractually obligated to reopen the public park by Dec. 26, although the deadline is an impossibility acknowledged by both parties.

In addition, San Diego, as the successor agency to the city’s since-dissolved redevelopment agency, leases the Lyceum Theatre from Stockdale through June 2034. The theater takes up around 40,000 square feet of space in Horton Plaza’s basement. Since 2023, the city has spent $13.5 million to upgrade the Lyceum, but the theater can’t reopen until Stockdale builds stairs and installs an elevator.

According to the lender’s lawsuit, Stockdale does not have the money to do the required work.

“Lender will suffer irreparable harm unless equitable relief is granted and a receiver is appointed to take possession of, manage, control, and protect the property, as borrower has represented to lender that there are no funds available, other than protective advances from lender, to manage, control or protect the property,” the suit states.

The complaint asks the court to appoint a receiver with power to control nearly all aspects of the property, including the ability to complete construction work and negotiate lease agreements and other contracts.

Gerson, the real estate attorney, said that the legal process will likely move quickly and a receiver could be appointed as soon as next week.

A receiver is technically an independent third party, but will presumably act with the interests of the lender in mind, he said.

The lawsuit also contains several contracts and documents connected to AllianceBernstein’s original and amended loan with Stockdale. The documents highlight a plan that has failed to repeatedly meet initial or extended project deadlines. The loan agreement was amended, in one instance, to incorporate a business plan that promised a project completion date in June 2024, with the exception of the park work.

The business plan also notes that Stockdale has been preparing to sell the former Macy’s store site for condo development. The developer previously said it would build a 40-story residential building with 518 units on the site in a future phase. To date, the former Macy’s store has remained structurally intact and nearly untouched. The building is masked within the central spine of the project by the surrounding environment.