"I look at the obligations associated with this lease combined with obligations that TSC [The Symington Company] is currently saddled with and truly wonder if the belt tightening measures we are currently considering, which includes reduction in our benefits, will only prolong the uncertainty of our ultimate survival or worse yet pay for this lease obligation" (emphasis added).
While Symington's campaign never signed the Esplanade lease, the memo underscores the internal dissent gripping the company in early 1990. The company's cost-reduction plan included removing Symington, the company owner, from the payroll by the second half of 1990.
The memo also reveals that Symington was unable to pay his share of "operating deficit loans" for the Esplanade. By failing to pay the loans, Symington was opting instead to reduce his equity share in the project -- which he was valuing on his financial statements at $7 million. Manning alleges Symington never disclosed his diminished investment in the Esplanade in his December 31, 1989, financial statement -- Symington has acknowledged this is true.
The Esplanade was not the only project that was hemorrhaging in early 1990. Nearly all of The Symington Company's 16 real estate projects were in tatters. Symington had hired attorneys to discuss throwing six of the projects into bankruptcy. A lender was threatening to foreclose on another project, the Scottsdale Center.
Symington's efforts to sell half of his share in the Scottsdale Seville project for $600,000 were rebuffed at the same time he continued to claim the project was worth $2.3 million on his financial statement. He eventually sold the share for $700,000 -- to his elderly mother.
While his company reeled, Symington was campaigning for the Republican nomination for governor. The centerpiece of his campaign was that he was a successful businessman who could bring his financial skills to government. But before Symington could get elected, he had to figure a way through a financial minefield. News that his real estate empire was crumbling could devastate his election effort.
Two major problems were emerging. First, a strip shopping center called Alta Mesa was having serious problems, and the construction lender, First Interstate Bank, was demanding that Symington make payments on a delinquent construction loan.
Second, the Mercado project was completed and it was time for Symington to close a loan with the union pension funds to repay the construction lender, which again was First Interstate Bank (now Wells Fargo Bank).
The union pension fund manager -- San Francisco-based McMorgan & Company -- was not enthusiastic about making the Mercado loan. It was agreed to three years earlier by a previous investment manager who ended up in federal prison for taking illegal loan kickbacks. The former manager saddled the pension funds with more than $250 million in Arizona real estate, most of which was losing money.
The loan called for the pension funds to provide permanent financing on the Mercado once construction was complete. The pension funds were committed to make the loan as long as Symington met certain requirements, including submission of an updated personal financial statement prior to loan closing.
Symington testified he knew McMorgan & Company was not excited about funding the Mercado loan in the spring of 1990 because of the ailing real estate market.
"I had heard discussions they would probably not like to fund the loan," Symington testified.
And he also testified -- and evidence shows -- Symington knew First Interstate Bank wanted him to close the pension-fund loan and use the proceeds to repay the bank's construction loan.
Finally, Symington testified that he knew he had to submit an updated personal financial statement to the pension funds for review and approval to obtain the loan.
"It was a requirement of the permanent [pension funds] loan commitment," Symington testified.
Evidence indicates that as spring 1990 turned to summer, First Interstate Bank was well aware of Symington's financial straits. Yet evidence shows First Interstate never informed the pension fund manager, McMorgan & Company, about Symington's mounting problems.
It is during this crucial period that Manning alleges Symington secured the $10 million pension-fund loan by submitting a fraudulent financial statement.
In May 1990, McMorgan & Company officials told Symington they would not provide the full $10 million loan. McMorgan cited provisions in the 1987 loan agreement that allowed the pension funds to withhold money for tenant improvements and future loan repayments.
The holdback created a $1.2 million gap -- the difference between what Symington's Mercado partnership owed First Interstate Bank on the construction loan and what he would receive from the pension funds.
Symington had also personally guaranteed repayment of the $10 million construction loan to First Interstate Bank. In early June 1990, Symington met with First Interstate Bank officials to discuss the situation.