ONE SLIPPERY DEVELOPER

HOW SYMINGTON WRIGGLED OUT OF PERSONAL GUARANTEES ON THE ESPLANADE

It was February 7, 1991. Twilight was gathering on Capitol Hill as J. Fife Symington III faced off with Senator Howard Metzenbaum. The timing couldn't have been worse. Symington was only three weeks away from a gubernatorial run-off election with Terry Goddard.

Metzenbaum had convened a hearing into the failure of Southwest Savings and Loan. The proceedings produced allegations that Symington had improperly profited from the thrift's investment in Symington's Camelback Esplanade project.

Metzenbaum had some questions for Symington. He wanted to know how Symington had earned more than $8 million in development fees from the Esplanade project after investing only $216 of his own cash.

Symington replied that he was responsible for arranging a $135 million loan from Dai Ichi Kangyo Bank and $38 million in equity investment from Shimizu Land Corporation to finance construction of two office buildings and the Ritz-Carlton hotel. This was on top of the $30 million he convinced his fellow board members of Southwest Savings to invest to buy the land where the Esplanade was built.

Once he had other people's money in hand, Symington paid himself millions in fees for overseeing construction (and a predevelopment budget that ballooned from $2.2 million to $13 million under his watch).

But Metzenbaum wanted to know more.
"What was your risk?" the Ohio Democrat asked.
"The risk is called bankruptcy if we fail. We owe $135 million to a bank," Symington, a Republican, said in sworn testimony.

"But when you put this deal together, you invested no money," Metzenbaum said. "Are you on the note for the $135 million?"
"Yes," Symington responded.
"Personally?" the senator queried.

"Yes. Yes, me and my partners are on the guarantee, and if you do not call that risk, I do not know what risk is," Symington said.

Three years later--almost to the day--it's no secret that the Esplanade has been a horrific financial failure. The three buildings will be sold next month to a Boston pension-fund management company for $70 million--that's a cool $103 million loss for the two Japanese companies.

But what about Symington? Didn't he swear under oath that he personally had guaranteed a $135 million loan? He must be filing those bankruptcy papers about now, right?

Wrong.
Symington wriggled off the financial hook.
Although Symington guaranteed Dai Ichi that he would repay the loans, for some reason, Shimizu and Dai Ichi reached a "friendly" settlement that relieved Symington of his liability.

"The bottom line is that Shimizu took over the buildings and took over the problems of having to deal with Dai Ichi," says Shawn Tobin, a Phoenix attorney working with the Resolution Trust Corporation to resolve real estate issues related to the Esplanade.

Shimizu officials declined to return phone calls, and a spokesman for Dai Ichi said he could not comment. Symington's real estate attorney, Jay Wiley, did not return a phone call.

So how did Fife pull it off?
Public records and interviews with three real estate attorneys familiar with the Esplanade provide some insight. The key appears to be that Symington positioned himself on both sides of the table during a series of complicated partnership transactions. He was both buyer and seller.

The governor was the managing partner for the three Symington-Southwest Savings partnerships selling three parcels of land for construction of the two office buildings and hotel. He also was a general partner in three Symington-Shimizu construction partnerships buying the three parcels of land.

When things went sour, Tobin says, Symington had positioned himself so that his agreement was needed before Dai Ichi and Shimizu could sell the three buildings and get out of the horrendous deal.

Thus Symington had leverage with Dai Ichi to release him from the personal guarantees. Of course, by the time that occurred, Dai Ichi was well aware that Symington had no personal wealth, so there was no use trying to squeeze blue blood from a turnip.

The Esplanade project encompassed 19 acres. The three buildings took up seven acres, leaving 12 acres for future office and condominium development. When Southwest Savings failed in 1989, those 12 acres were acquired by the RTC.

Amazingly, Symington also had de facto interest in the undeveloped 12 acres taken over by the RTC. Either by accident or design, before the first office building was constructed, the recorded legal description of land for that building shows the parcel's boundaries extending far into the adjacent 12 acres. This, in effect, placed a lien over a portion of the undeveloped land, making it useless to the new owner--the RTC.

Symington was involved once again on both ends of the deal. He was the managing partner of the entity that was building the office tower and buying the land called Camelback Esplanade Limited Partnership No. 1. He also was the managing partner of the Southwest Savings partnership that sold the land for the building.

Regardless of the cause, the effect of the enlarged legal description gave Symington some leverage against the RTC. So while the RTC was suing Symington, alleging he improperly used Southwest Savings money to buy the Esplanade land, a Symington partnership was blocking the RTC from doing anything with the undeveloped 12 acres.

This dispute was finally resolved last summer after the RTC sued Camelback Esplanade Limited Partnership No. 1 in Maricopa County Superior Court. The case was settled out of court and the disputed property was conveyed to the RTC.

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