Thursday, Jan. 17, 2008 | When Cornelia Eulert bought her 9th-floor condo in El Cortez, the iconic former hotel, the drama therapist and theatre aficionado couldn’t resist the landmark’s charms, its solid walls and architectural “dignity.” She saw her 2005 purchase as a contribution to the beautification of San Diego.
“I think everybody that moved in was a little bit of a dreamer,” she said. “You walk in there, and it can be Milan, it can be San Francisco or Stockholm — it has that Old World charm.”
Trouble on the Hill
But soon, Eulert said, the glimmer faded. Pipes burst and flooded the hallways and some units, walls and floors cracked, and the homeowners association couldn’t afford to pay for the services the buyers had seen when they first moved in, like a uniformed doorman and valet parking. And even while they had to cancel services, their monthly association dues skyrocketed because of the maintenance needs.
Water leaked in Eulert’s unit; she hated seeing patches in the ceiling. She said it was clear that the developers didn’t love the building the way the homeowners did.
“It’s a sloppy job,” she said.
The issues saddling El Cortez pit angry homeowners against the developers who brought the building out of its derelict state in the first place. They’re suing to make their building whole again, they say.
Developers of high-rise condos are no stranger to construction defect lawsuits, and some observers dismiss the disputes on Cortez Hill as routine kinks to be worked out in the building’s first few years of residential living. But a look at what the homeowners allege, and how the developers respond, yields a glimpse of how contentious high-rise living can be. And as downtown boosters woo more development to the city’s core, future residents and high-rise builders track the problems faced by both the homeowners and developers at the El Cortez, hoping to find a way around them on their own projects.
The lore surrounding this building in particular grows as developers claim their disclosures were comprehensive enough and homeowners remember — and in some cases, gather documents to demonstrate — the story a little differently.
The homeowners association and some individual homeowners have brought a number of lawsuits against the developer over construction defects, its plans to build a sister condo tower and the funding of the homeowners’ association. Those suits have been consolidated and are headed for trial in April. Several other lawsuits that touch on a number of other different topics remain.
In the meantime, the assorted parties have been attempting to resolve some of the issues through mediation. And the rift grows between some of the homeowners and the developers, Peter Janopaul and Anthony Block, whose offices remain in the lobby of the building.
The homeowners frequently claim they feel the developer deceived them about the extent of the problems with the building when they bought it.
The J. Peters Block Cos. knew there were problems. It commissioned analyses of the building’s trouble spots in 2004 and sued its contractor, Sundt, for the needed repairs. It withdrew the suit in August before any units closed escrow, thus avoiding disclosing the litigation to potential buyers and to the California Department of Real Estate, the overseeing entity, attorneys for the homeowners allege.
When the developer sold the units later that year, it included mention in the purchase disclosures that it was negotiating with the contractor to fix the problems that were evident. Many homeowners interpreted that to mean the problems they saw would be fixed. But when the units were all sold, the developer picked its suit up again against the contractor to recover its expenses.
And still, the building had problems. Attorneys for the homeowners allege the association’s reserves to handle such repairs and ongoing maintenance were significantly underfunded. The reserves for an HOA are like a savings account, usually calculated and set up by the developer when the building is sold to individuals. The reserves typically account for the wear and tear already sustained by the building and contain enough to deal with the building’s maintenance going forward.
“If they weren’t going to fix it, they should have put money in the reserves so we could,” said Andrew Berman, attorney on one of the homeowners’ suits.
Tomas Morales, attorney for J. Peter Block, said that timeline was correct, but he disputed the allegation that it was a slippery maneuver around comprehensive disclosures. He said dropping the suit and, instead, referencing ongoing negotiation in the disclosures to homeowners, was a way of letting the homeowners know there were issues without scaring them off with talk of litigation.
“With hindsight and a different pair of glasses, you might see it differently,” he said.
Berman is asking for just less than $13 million from the developers for what he says should’ve been put into the reserves and what the association will need to maintain the building for the next 30 years.
Kathy Casey was one of the first tenants of the El Cortez after it opened as apartments in 2000. She moved back to San Diego from Washington state just to live in the historic site, she said. She worked for the developers occasionally, serving as the emergency contact person and performing some office tasks. Even at the start, she said, the building had its trouble.
“I remember plumbers banging in doors saying, ‘Let me in, we have a flood,’” she said.
When the developers announced the building would be converted to condos, Casey was interested in buying a unit. But after she reviewed the disclosures and the budget for the HOA reserves, she wrote a letter to the developers. She complained that the budget was too low to cover the maintenance and future repairs she expected, even as a layperson, and when they didn’t adjust it, she decided to buy a unit across the street instead. She’s stayed involved in the progress of the landmark.
“They shouldn’t have assured people, with a phony budget,” she said. “People have just kept discovering things. It keeps getting worse and worse.”
But Morales, attorney for the developers, quarreled with the notion that every problem with the building is the developers’ problem.
“I guess I would have to take a little issue with the extent of the repairs that were promised,” he said.
One homeowner in the building, Kevin Cottrell, has owned several other units in downtown San Diego and said he loves living at the El Cortez. He splits his time between his home there and a place in Los Angeles, where he works. Cottrell said he wasn’t surprised the building had problems.
“With construction defects, in high-rises, they’ve all teetered on and into litigation,” Cottrell said. “It’s no different than a lot of places. Odds are there is going to be litigation.”
And as the litigation scares away lenders who would give mortgages to buyers on the units that are for sale in the building, asking prices for those units have plummeted. Homeowners, some of them first-time, watch and worry as their own property values dip — temporarily, they hope. That concern carries emotion into the equation.
“I think sometimes there’s some remorse there — it’s a tough time to be in real estate,” Cottrell said. “You’re wondering, ‘Is your house worth what you paid for it?’”
Morales said the developers encountered unique concerns converting the units because of the building’s historicity.
“The developers could have made this a pristine building,” he said. “But with the historic designation, the reconstruction that was done was severely limited.”
But Berman said the historicity constitutes a large part of the homeowners’ complaint.
“There was a failure to reserve for the ongoing cost to maintain this historical building with its unique costs,” Berman said. “It costs a lot more to maintain a building like this. And they decided not to make the repairs, to leave us holding the bag.”
And Eulert said she hopes these issues don’t overshadow the building’s allure forever.
“I don’t want to pooh-pooh this building as being gone, lost,” she said. “It’s like an antique piece — finish it a little bit and it shines again.”