W.L. Brown: A Public/Private Partnership

In 1992, the Sutter County Board of Supervisors approved a series of agreements with the prospective Newtown developers, but the approvals created enormous political turmoil, much of it based on environmental concern. The next year, an election changed the makeup of the previously pro-development board. The new board rescinded the approvals. Lawsuits were filed, but the Newtown proposal died, and subsequent attempts to gain approval for large-scale development in the area have also failed.

The failure of Sutter Bay had a profound effect on Sutter Bay Associates and Live Oak III. A spokesperson with Washington Mutual Inc., a current owner of Ahmanson's Sutter Bay interests, says the firm lost millions on the Sutter Bay venture. According to recent interviews with limited partners, Live Oak III also suffered significant losses that apparently continue to impact investors.

Many limited partners say that the Live Oak general partners, Cohen and Falik, began to branch out, seeking other real estate projects that might help recoup some of the losses their investors incurred at Sutter Bay.

Whitney Oaks was one of those projects.
Cohen and Falik apparently began negotiating with CalPERS and Newland on Whitney Oaks early in 1995. In the summer of 1995, the Live Oak III limited partners voted to invest in Whitney Oaks, after being apprised by Cohen and Falik that CalPERS was the major money player in the project, many limited partners and partnership documents say. Then-Assembly Speaker Willie Brown was one of these limited partners.

In the end, a complex partnership was formed among CalPERS, the principals of Newland Capital Advisors LLC, and Falik and Cohen. This group agreed to pay $17.5 million for a 1,075-acre plot of land in Rocklin, a small city northeast of Sacramento. The purchase was consummated in November 1995.

The public/private partnership formed to develop Whitney Oaks is, indeed, complex. Willie Brown's ownership stake is buried deep within that complexity. And CalPERS has withheld some key documents relating to the project, claiming their release would injure the retirement system's competitive position in the real estate industry.

Early this week, Bryan Bailey, the CalPERS project manager for Whitney Oaks, said that he did not know Willie Brown was an investor in the project until SF Weekly began questioning it. "We do not drill down that far," he said. A representative of Newland also said she was unaware of Brown's affiliation with Whitney Oaks.

As if its ownership structure did not provide enough complexity, the owners of Whitney Oaks have also hired a developer for the project. CalPERS documents obtained by SF Weekly are inconsistent in identifying the developer. Sometimes, the developer is listed as Live Oak Associates. In other documents, the developer is identified as Live Oak Enterprises, a business established by Falik and Cohen.

Brown is a partner in Live Oak Associates, but there is no indication he holds a stake in Live Oak Enterprises (although it does provide management services to Live Oak III).

CalPERS has declined to release documents showing how much the developer of Whitney Oaks is eligible to earn. After initially agreeing that Live Oak Associates was the developer, CalPERS and Newland staff later insisted that Live Oak Enterprises had been hired as the developer. CalPERS and Newland gave multiple, conflicting, nonconclusive explanations for CalPERS's repeated listing of Live Oak Associates as the Whitney Oaks project developer.

The developer question aside, an investigation by SF Weekly shows that Live Oak Associates III -- a partnership in which Willie Brown has long been an investor -- clearly holds ownership in the CalPERS-backed venture that is developing Whitney Oaks. More than 10 limited partners in Live Oak III spoke to the Weekly in detail about the partnership's investment with CalPERS, and correspondence Cohen and Falik have sent to Live Oak investors describes the Whitney Oaks investment in extremely precise terms.

The bottom line: A partnership between CalPERS and Newland owns 96 percent of the Whitney Oaks project. The other 4 percent is owned by a partnership between Cohen and Falik, the two general partners of the Live Oak Associates partnerships.

And Live Oak Associates III owns a little less than 1 percent of the project.

According to a July 1995 Live Oak status report, Live Oak III partners had an opportunity to invest about $200,000, for a potential (but hardly guaranteed) return of $2.2 million -- or, approximately, 1,000 percent.

When CalPERS decided to bankroll the purchase of Whitney Oaks, Willie Brown was in his final year in the state Assembly, and at the end of a 14-year run as speaker. In fact, the purchase was consummated just a few weeks before Brown won the San Francisco mayoral runoff election against Frank Jordan in early December 1995.

While he was Assembly speaker, Brown "moonlighted" as a lawyer. His private law practice was large, lucrative, and controversial. He was repeatedly criticized for accepting large legal retainers from clients with significant interests in state legislation. Brown repeatedly responded by insisting his private legal work did not involve legislative or state agency matters.

Because San Francisco mayors are forbidden from employment outside government, Brown sold his law firm before taking office. During the mayoral campaign, however, Brown's legal clients became an issue; many news reports questioned whether Brown might be tempted to favor former clients if or when he became mayor. Particularly, Brown's relationship with the Catellus Development Corp. came under fire.

According to the San Francisco Examiner's Lance Williams, then-Speaker Brown took in nearly $400,000 in legal fees from Catellus from 1982 to 1994. And it was clear Brown would have to deal with Catellus and its long-stalled Mission Bay project, somehow, if he became mayor.

Brown responded to the criticism in a variety of ways, at times suggesting he would refrain from mayoral action that would affect former clients, out of concern about the appearance of conflict of interest. At other times, he indicated he would recuse himself only when the law required it. But once elected, Brown demolished any notion he would abstain from matters relating to Catellus by fiercely advocating for a new plan for Mission Bay.

In an interview just days before Brown's mayoral inauguration, the Examiner quoted the mayor-elect as saying that building Mission Bay would be one of his top priorities, and that he'd be calling Catellus the day after he was sworn in as mayor. Brown also suggested the development could move more quickly with encouragement from Catellus' largest shareholder -- CalPERS, which then owned more than 40 percent of Catellus.

"I'll place a call to the people who actually own Mission Bay," Brown was quoted as saying. "We're not talking about a profit-seeking organization, we're talking about an entity under public control that simply must protect the beneficiaries' investment. That's a different agenda."

Catellus' hopes of developing Mission Bay had been bottled up for years. The city approved a development plan for the area in 1991, but Catellus found the plan so restrictive that it wasn't profitable to build. In 1995, the company walked away from the plan, and wrote off $84.8 million in losses.

But a reversal of fortunes followed quickly after Brown took office. Catellus gained approval of a new Mission Bay plan calling for construction of millions of square feet of office space and thousands of residential units. Approval came in October 1998 with the strong support of Brown, who actively and successfully campaigned for the University of California, San Francisco to locate a new biotech-oriented campus in Mission Bay. Some of the land for the new campus was, in fact, donated by the city.

Approval to move forward on Mission Bay removed a longtime thorn from Catellus' side. After 15 years of defeat at the hands of slow-growth activists, Catellus now had a centerpiece project -- involving hundreds of acres of prime San Francisco real estate -- ready for development.

As the fortunes of Catellus rose, so did the fortunes of the California Public Employees' Retirement System. The system had bought a huge chunk of Catellus stock in 1989, owning as much as 46 percent of the firm at one time. As a real estate recession took hold and then deepened in the early 1990s, however, the stock plummeted in value, drawing intense criticism of the investment.

Catellus' own annual reports indicate that the approval of Mission Bay -- an approval championed by Willie Brown -- improved the firm's financial position. Of course, other factors were also involved in the improvement in Catellus' fortunes, including other real estate investments in Illinois, Oregon, Colorado, and California.

Still, the trend is clear: When Brown took office, Catellus stock was hovering in the $6.50-per-share range. Early in December 1997, as Catellus' new plans for Mission Bay were sliding toward city approval, CalPERS sold nearly 19 million shares of its stake in Catellus at slightly more than $17 a share, reducing its percentage of ownership from more than 40 percent to about 18 percent. In effect, the retirement fund made some $200 million from the rise in stock prices between early 1996 and the time it sold its shares.