Gilroy
– A high-risk real estate scheme now banned throughout
California appears to have been headed for Gilroy, where in May
2000 developer Wayne Pierce established the Sargent Ranch Mutual
Water Company.
Gilroy – A high-risk real estate scheme now banned throughout California appears to have been headed for Gilroy, where in May 2000 developer Wayne Pierce established the Sargent Ranch Mutual Water Company.
Pierce created a similar water utility in Contra Costa County to serve as one leg of a public financing authority, or PFA, later found to be in violation of state securities laws. The Internal Revenue Service made that determination after the Roddy Ranch Public Financing Authority issued $40 million in bonds to finance a golf course and 1,000 homes in the East Bay, between Walnut Creek and Stockton.
The Roddy Ranch PFA represented one instance of a complex financing scheme used by developers throughout California to fund real estate projects. The scheme pushed the limits of a California law known as the Marks-Roos Bond Pooling Act of 1985.
It was originally designed to enable cities to come together to raise funds for hospitals, schools, and other public projects they may not have been able to finance on their own. The law allowed two or more public agencies to form a Joint Powers Authority and issue bonds.
“I believe it was going to be the intent to follow the same type of path with Sargent Ranch,” said Dave Tanner, a golf course consultant who served as chief executive officer for the Sargent Ranch water company.
“There were one or two meetings that took place but nothing ever really materialized,” he said.
Tanner also served as board member on the Roddy Ranch Public Financing Authority, an entity created in 1998 to raise bond money for the project. Over its four year life, that entity was comprised of Roddy Ranch Mutual Water Company and two other public agencies.
The Roddy Ranch water utility listed Pierce’s personal secretary as the CEO and secretary and his mother as chief financial officer, according to bond statements and records from the Secretary of State. In 1999, the developer’s mother, Peggy, took over as secretary and a third person filled in as CFO, according to corporate filings.
The Roddy Ranch water company was created to step in for the City of San Joaquin, which resigned as a member of the Roddy Ranch PFA toward the end of 1998.
In 1999, a state law took effect requiring publicly financed projects under the Marks-Roos law to lie within the geographic area of at least one member agency. The Roddy Ranch water company helped the agency meet the letter of the law after San Joaquin resigned.
The Merced County School District, meanwhile, stayed on as the second leg of the financing authority. The school district, which lies more than 100 miles from Roddy Ranch, was promised $520,000 for participating in the financing scheme.
The entire deal was orchestrated by David Fitzgerald, the man Pierce recruited to raise money for the Roddy Ranch project.
In May 2002, the IRS found the Roddy Ranch PFA to be little more than a ‘rent a city/agency scheme … to improperly finance private loans on a tax-exempt basis and enrich various participants to the transactions.”
In July 2002, the state suspended the corporate licenses of both the Sargent Ranch and Roddy Ranch mutual water companies.
Pierce said he was unaware of the legal issues surrounding the Roddy Ranch PFA, according to IRS documents. In an e-mail response to inquiries, he wrote that he became aware of such issues in early 2000, “when it was discovered that Mr. Fitzgerald and his companies were being investigated by the Securities Exchange Commission.”
State and federal authorities ultimately revoked Fitzgerald’s broker’s license for a similarly structured deal in Southern California. The securities dealer is believed to have left the country, and authorities are still trying to recover “ill-gotten gains” for investors who purchased more than $83 million in bonds from Fitzgerald.
According to corporate filings, Pierce established the Sargent Ranch Mutual Water Company in May 2000. The water utility was registered at 321 Kishimura Drive, in a warehouse in the corporate park a few blocks northwest of the Gilroy Premium Outlets. Pierce was registered as the managing agent.
“The Sargent Ranch Mutual Water Company, as far as I understand, is not a valid entity,” Pierce wrote. He added that Sargent Ranch LLC, which he created to hold title to the land, “has no current involvement with, nor will it have any future involvement with, this entity.”
State lawmakers eventually plugged up the loopholes allowing such financing schemes, estimated to have cost investors more than $250 million. But it was county officials who ultimately sealed the fate of the Roddy Ranch and Sargent Ranch projects. In late 2000, Contra Costa County supervisors worried about “leapfrog” development redrew the urban limit line to prevent home construction on Roddy Ranch. Around the same time, Santa Clara County supervisors made clear they would not rezone Sargent Ranch to allow development of golf courses and hundreds of hillside homes.
The Roddy project recently emerged from bankruptcy court with a new group of owners, who hope to complete the development within the next five years.
Meanwhile, Pierce has joined forces with the Amah Mutsun Indian Tribe to unlock the development potential of Sargent Ranch, although he says he no longer wishes to build golf courses and homes. The entire deal hinges on the tribe gaining federal recognition and placing the lands under the governance of tribal law. To date, Pierce has invested hundreds of thousands of dollars in that effort.
