Bay Area development giant Lennar accused of fraud

The Sacramento Bee reported that the Bay Area’s mammoth housing developer Lennar Corp. and its spinoff company LNR Property Corp. are being accused of defrauding the California Public Employee’s Retirement System and others in a new lawsuit.

“The suit says Lennar and LNR Property used ‘grossly inflated’ land appraisals in securing the CalPERS partnership investment and a separate $1.5 billion loan commitment from a group led by global giant Barclays Bank.”

The investment was made in LandSource Communities Development, a portfolio of properties that went bankrupt in 2008, causing CalPERS to lose $922 million. (For more on the lawsuit, see the Sac Bee article.)

The general spirit of the suit suggests that Lennar is accomplished in wooing investors with promises of high returns, which should be a heads up to Bay Area residents. Lennar has fingers in a handful of Bay Area development projects, including Mare Island, Hunters Point, and Treasure Island.

The San Francisco Public Press published a special report in June on the redevelopment of Treasure Island. Lennar and its investors are putting up 50 percent of the capitol needed to prepare Treasure Island for development. San Francisco-based Stockbridge Real Estate Funds will fund the other half.

When interviewing Jack Sylvan, redevelopment director for the Treasure Island Development Authority, and the city’s agent negotiating the public-private partnership, he called the Treasure Island project, “about as risky a project as you can find and yes the pro forma shows, which is what they [the developers] need the pro forma to show, that they’re actually going to get a return, or nobody is going to invest in the project, but does that mean that it’s actually going to happen?”

Good question given Lennar’s track record and current legal problems.