El Peñon: The First Real Estate Purchase
Jeff Berwick standing in front of the house at El Peñon. When purchased, it was in disrepair. Johnson paid his thug Thornton to renovate it, but the renovations were not completed. Mario Del Real entered the property on Jan 20, 2015, evicted the caretaker, changed the gate lock and stripped the building. He also allowed his thugs to cut down a small almond orchard to sell for firewood. Later, the windows were returned but not installed. Johnson took videos of “the damages.” (sic)
This is the first GGC property, purchased in December 2012. The circumstances around the El Peñon purchase began the fraud. See our post, “When Is a Partner not a Partner” for the explanation of how Johnson defrauded his partners. Here we’ll discuss how he defrauded his investors.
Below are two maps showing the zoning for El Peñon. It is eminently clear that the area that can be used for building is small. Approximately 95% of El Peñon is protected by environmental law. The grade on the slopes over about half the property is too steep for development.
In addition to the zoning issue, the water rights are limited to the waters that originate and die on the property, i.e. springs contained within El Peñon’s borders. There is not enough water for a residential community plus agricultural development, forget about hydro power, a golf course and man made trout ponds. We kid you not, that was in the plan. Take a look at this spreadsheet and note the income categories on the far right.
So, we’ve got zoning obstacles, limited water and crazy, water-hogging schemes. Johnson bought El Peñon because he did not perform the due diligence required to find the problems. Three law firms told him that he didn’t perform adequate due diligence–one before the purchase, and two afterwards. Sounds like a material omission to us.
Just thought we’d mention that we asked a real estate agent to look up the zoning and water rights for us. It took our agent one trip to the local municipality, one trip to the Water Department and within two weeks he was able to confirm these facts and provide us with the documents. Yet Johnson was so sure of himself–or so stupid–that he didn’t do that.
Stuck with this disaster, Johnson hushed it up while looking to buy another property in the valley. He also tried proposing a deal with his neighbors where they would commit their properties to the development that he would oversee. They would retain ownership and be entitled to a portion of the profits.
Then in April 2013, Johnson finally met Guillermo Ramirez.
El Lepe/Las Casas: The Second Real Estate Purchase
The Lepe hacienda around the time of purchase. Lepe includes a 100 hectare working lemon orchard that had been neglected for years. Yields are 10% of what could be expected of a healthy orchard. There is also a mostly dead avocado orchard. Water stress and mineral deficiencies are the problem. Johnson talked about the 12 buildings on the site without disclosing that all of them were in need of renovation, with some being tear-downs. None of this would have been a problem if the price were right.
We are told by Cobin that his partner, Germán Eyzaguirre, had just negotiated a purchase of Lepe for $3 million, when Johnson met Ramirez and cleverly swooped in to buy the deteriorating property for $6.8 million. We are also told that the locals were astounded by the purchase price.
Ramirez agreed to accept payments over an eight month period and included expensive late penalties in the contract.
There are extensive water rights associated with the property. For a discussion, see our post, “Water, Water Everywhere, Nor Any Drop to Drink.” Of course, water rights do not guarantee that there is water. Interestingly, Ramirez recently negotiated an agreement with Marion Del Real, the Chilean swindler who stole ownership of GGC and conned Johnson out of managerial control of the company, too. (See blog post Rio Colorado: the Con Man Got Conned.) Representing Inmobiliaria Galt’s Gulch in arbitration, Del Real agreed not to sue Ramirez for misrepresenting the water situation.
For the second time, Johnson failed to perform due diligence on the water resources. He contracted an engineering firm but closed on the sale before he received their report. Sounds like a material omission to us.
It is still not clear to the investors what the zoning situation is on Lepe, how many building sites will be allowed and how large the lots. Johnson hired engineers and architects to determine these parameters and develop a master plan, multiple times in fact, but never seems to have figured it out. As with everyone who worked for Johnson, he accused them of being either woefully incompetent or diabolically determined to “destroy GGC.” Why anyone would want to “destroy GGC” we don’t know, but that is his repeated claim. Life is a melodrama, don’t ya know.