The Bay Area Real Estate Journal
‘Radical Gentrification’ in East Palo Alto
David Taran, a regional developer, is struggling to hang on to more than 100 properties he acquired with renewal in mind.
PUBLISHED IN OCTOBER 2009 ISSUE
When developer David Taran began buying old apartment buildings, single-family houses, land, duplexes and even a store in East Palo Alto three years ago, a grand plan motivated his movements.
Backed by $243 million from Wachovia Bank and $100 million from the California Public Employees’ Retirement System, the middle-aged lawyer kept a color-coded map of the 140 tracts he wished to buy.
Never could he have conceived where he finds himself today. Sept. 30, Taran and his team of lawyers will face San Mateo County Superior Court Judge John L. Grandsaert to argue why control of Taran’s mushrooming empire should not be ceded to a receiver.
It is perhaps fitting that Taran’s immediate fate will be decided in a courtroom. It is a place he seems to feel comfortable pursuing his business goals. San Mateo County court records reveal his firm, under various names and via various companies, has sued, countersued and been sued no less than 30 times since July 2006, the month that CalPERS agreed to invest in Taran’s fund, Page Mill Properties II.
In most instances, the trove of public records produced by such prodigious litigation would reveal much about the man or at least his business intentions, and in some ways they do. But Taran is a secretive actor who jealously guards what one of his attorneys has defended as the “trade secret” of his business plan in East Palo Alto. Court documents are routinely sealed and redacted; settlements are not public.
Attempts by rival lawyers, rent-control advocates and journalists to attain explanatory documents, even documents pertaining to CalPERS, a public agency, have been met largely with frustration.
But, as time passes, with more court hearings and legal documents and public records filed nearly by the day, Taran’s plans and expectations inexorably, if slowly, are being revealed. It is evident that they are substantial. Whether they will ever come to fruition is another question.
Taran’s efforts in East Palo Alto have been complicated by an aggressive and persistent grass-roots campaign led by the EPA Fair Rent Coalition. Tenants, represented pro bono by attorneys Robert Hawk and Ryan Marsh of Hogan & Hartson in Palo Alto, have sued Page Mill to contest rent increases in a subset of the company’s 1,800 rental units. In a Sept. 1 hearing, tenants won a decisive court ruling to bring the city’s rent-control ordinance back into effect on their units. During the hearing, attorney Hawk described Page Mill’s tactics as a “strategy of radical gentrification” that involved a mission, conceived by Taran, “to buy up most of the rental properties on the west side of [U.S. Highway] 101 in East Palo Alto.”
All of the properties sit in tight clusters north and south of East Palo Alto’s star redevelopment, University Circle, home to a Four Seasons Hotel and restaurant and four top-quality office buildings. They also are adjacent to Palo Alto, one of the South Bay’s most exclusive communities with pace-setting real estate values.
While Page Mill has acquired 101 properties that are collateral for its Wachovia loan, court records in an unrelated case indicate that Page Mill’s expectations had been to purchase 140 properties or more. During a 2007 court hearing involving a former Page Mill real estate agent, opposition counsel Ron Rossi described the company’s plans as expansive. According to Rossi, Page Mill sought to buy properties for a full half mile north of University Circle up to the Menlo Park line and a full half mile south to the border of East Palo Alto. Later in the same hearing, he tells the court, “The deal as I understand it, when complete, will be a $1.6 billion acquisition.”
Rossi goes on to argue that Taran’s so called trade secret business strategy was far from secret. Rather, it was an obvious effort to jump on a renewal bandwagon that had been gathering force for years in East Palo Alto. Rossi concluded, “ …[T]hat is going to be an area of lots of affluent people there.”
Page Mill’s attorney Jeffrey Brown of Los Angeles law firm Pircher, Nichols & Meeks did not contest Rossi’s characterization. Indeed, during the same hearing, Brown described Page Mill’s goal in East Palo Alto as creating “an assemblage or collection of various properties for development purposes.”
A sampling of the property bought and the prices Page Mill paid for the East Palo Alto parcels also suggest that Taran had far bigger fish to fry than simply buying and holding a cluster of aging rental properties. According to San Mateo County tax records, his purchases include raw land and a neighborhood convenience store. One of his first acquisitions was a 600 square-foot house built in 1926 and situated on 12,000 square feet of land. He paid $1.55 million, or a little shy of $130 a land foot, for the site. That is well above $5 million an acre, lofty even by Silicon Valley standards. Other land prices were even higher.
How the situation evolves from here seems impossible to predict.
The judge’s temporary order signed Sept. 9 to appoint receiver David Wald to manage the Page Mill portfolio expires the day of the Sept. 30 hearing. The judge is expected to decide that day whether to install the receiver more permanently. CalPERS, which has written down the value of its investment by 40 percent, is not expected to invest more equity. And Wachovia, now owned by Wells Fargo & Co., is demanding repayment of its $243 million plus interest. Perhaps tellingly, the bank has not filed a notice of default on the loan, though it states in court filings that a $50 million payment due Aug. 4 has not come in. A notice of default is the first step in the out-of-court foreclosure process. Nor is the bank seeking foreclosure as part of its effort to have a receiver appointed.
CalPERS declined comment for this story; publicists for Page Mill Properties did not return calls.
In its temporary order, the court did direct receiver Wald to “resolve any pre-existing lawsuits, including but not limited to those involving the [c]ity of East Palo Alto.” That may take longer than the 21 days initially at the receiver’s disposal.
Reporter Jon Peterson contributed to this article.
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