The Mills Brothers dynasty - What went wrong?
Thursday, January 8, 2009
Two days before Christmas, Roger Mills’ mansion was on the auction block. The stone-covered country manor sits on a prime hill in the Monterra development overlooking Monterey Bay. The custom home’s large deck and spacious quarters once made it an ideal venue for charitable events and a gathering spot for Monterra residents. The home’s 11 bathrooms were tailored for Mills’ seven grandchildren to sleep over.
Before finding a last-minute buyer in late December, Mills owed more than $6 million on his house, part of a wheelbarrow full of real estate debt that appears to be slowly burying him. The former agribusiness man has already lost at least two of his other residences, and his Corral de Tierra home is scheduled for auction at the end of the month. Mills was trying to fetch $14 million for the six-bedroom Monterra home – the same amount he borrowed against the property. The opening bid was set for $6.3 million, but at San Diego bank Cenlar FSB’s request, the sale was delayed.
Although Dana McManus, a Bay Area construction executive, bought the prized home for $9.4 million, that probably offers Mills only a temporary reprieve from his financial troubles. The sale may show that buyers with deep pockets still have an interest in Monterra, but it does little to settle the struggling subdivision’s massive debt.
The dream development envisioned by Basil and Roger Mills was supposed to be the brothers’ biggest score. At 1,700 acres, the oak tree reserve was one of the largest developable pieces of land on the Monterey Peninsula. Positioned next to Clint Eastwood’s Tehama, the former cattle ranch had instant allure.
Large banks, retirement funds and local investors bought into the dream, loaning an estimated $100 million to the Mills brothers. Nobody thought the prized real estate venture would fail or that the brothers, widely seen as agriculture pioneers and philanthropic pillars of the county, would shortchange them.
Enter the subprime mortgage crisis. The housing bubble bursts. Local and national housing markets plummet. Monterra lot sales dry up. Around the same time, local vegetable growers including Mills Family Farms took a huge hit from the 2006 E. Coli outbreak in bagged spinach. But unlike most local ag company owners, Basil and Roger Mills are also housing developers. In addition to heading up Monterra Ranch Properties LLC, the Millses are partners in Mills Ranch, a subdivision in King City – now stalled because foreclosed homes are flooding the market and loans are hard to come by.
Unable to pay their bills and overextended in real estate debt, the Mills brothers’ dream sucked up their fortune. Lawsuits and foreclosures followed. In July, Mills Family Farms shut down. Their grower/shipper outfit, once a 24-hour hub for delivering produce across the country, is now a vacant warehouse. Basil and Roger, once highly visible agricultural and community leaders, are now seen as recluses. (They declined interview requests through their spokesman, David Armanasco).
Their supporters say the Millses are getting a bum rap: They’re just a casualty of the mortgage crisis and ensuing economic downturn, a havoc-wreaking maelstrom that has swallowed household names like Lehman Brothers. But critics say the brothers made a greedy crossover into real estate at the expense of investors’ hard-earned cash. Whatever the case may be, the Millses built up a reputation that was exalted. Until early last year.Family first
Raised in the Midwest, Basil came to Salinas in the early 1950s to work for a produce brokerage. In 1958, he started Mills Distributing Company as a one-man cauliflower marketer. Shortly after, Basil’s younger brother Roger became his first employee. The company expanded to grow, harvest, process and ship a variety of vegetables. At its peak, Mills shipped 10 million cartons of produce a year from 12,000 acres of crops. The company employed three generations of Mills family members, including Basil’s son, David, as senior vice president, and his grandson, James, on the sales staff.
“They were a well-run company, well respected in the industry,” says Salinas agricultural consultant John Inman, adding that they were one of the early companies to market whole leaves of Romaine lettuce. The Millses were known for their generosity, giving of time and money.
Basil and Roger both served on the board of Grower-Shipper Association of Central California, and have been active with numerous industry and community boards and committees.
UNABLE TO PAY THEIR BILLS AND OVEREXTENDED IN REAL ESTATE DEBT, THE MILLS BROTHERS’ DREAM SUCKED UP THEIR FORTUNE.
“You look at all the good things they’ve done for the community,” says Jim Bogart, president of the Grower-Shipper Association, “and there probably isn’t a nonprofit board or entity that hasn’t been supported by Mills in some way, shape or manner.”
The Mills brothers have been longtime backers of the United Way of Monterey County. Mary Adams, United Way president, says both brothers fulfilled $1 million pledges to the nonprofit between 1999 and 2005. Basil also founded the local United Way’s Alexis de Tocqueville Society, an exclusive group of donors that gives $10,000 a year or more.
“We continue to reap the benefits of all the hard work that he did,” Adams says.
Basil has also been a big nutritional advocate, founding Healthy Eating Lifestyle Principles (HELP) in 2004. HELP’s programs deliver farm-fresh produce to schoolchildren and educate families and workplaces on proper nutrition. “Basil was the brainchild in that he realized there was an obesity problem and that living in a land of plenty… people weren’t eating the amount of fruits and vegetables that they should,” says Suzanne Du Verrier, HELP’s executive director.
Roger has been nearly as active, serving on the Boys & Girls Clubs of Monterey County board and helping raise money for the organization’s Salinas club. Friends and colleagues describe Basil and Roger as gentle and honest.
“In our community there has been prosperity and there has been great generosity,” says Salinas Mayor Dennis Donohue. “I think they truly embody that. They gave back. Their loss is the community’s loss.”Monterra takes shape
While selling crops and community service dominated business for the Mills brothers, they also had their sights on real estate ventures. Their biggest leap into development was spawned when some Australian investors gave up on their quest to build on premier land across from the Monterey Peninsula Airport on Highway 68. The Australians reportedly worked for years to get entitlements for the property in the 1980s, but the wells were salt-laden. Reverse osmosis seemed too costly, so the group put the property on the market. The Mills brothers bought the Monterra property in 1996.
As the story goes, Eastwood then needed more land to build his Tehama golf course, so he bought 1,000 acres from the Millses. “He wanted to buy 1,000 acres from us, and he threw in a couple of golf club memberships for my brother and I to sweeten the deal,” Roger Mills told the Silicon Valley San Jose Business Journal in November 2006.
Monterra includes entitlements for 168 lots. (The Mills brothers also own 14 lots in Tehama.) The Millses raised capital mainly by borrowing money against the trust deeds of Monterra’s lots. The developers put in roads and a sewer system and started selling the vacant land for the wealthy to build custom homes.
Business progressed well in the early years. Don Chapin’s company has been doing the grading and paving for the project since the beginning. Chapin says he was always paid on time – until March. Now Chapin is suing Monterra Ranch Properties for the $1.5 million plus interest he says he is owed. “It’s unfortunate, because I like the Mills brothers very much, and I’ve done a tremendous amount of work for them over the years,” Chapin says.
A city of Salinas retirement fund became a heavy investor. The Deferred Compensation Fund first loaned money to the Mills brothers in early 2004, says Tom Kever, city finance director and fund administrator. Over a 2-year period, five loans totaling nearly $6 million were paid off, Kever says. The city eventually loaned a total of $17.2 million on 15 loans. The 9 percent interest rate was paid on time, also until March.
“Until somebody turned off the switch on the real estate market, it was a very good business engagement,” Kever says.
Eighty-six Monterra lots sold by 2006, but over the last 2 years sales have slowed to a halt. Two Monterra lots sold in 2007, while only one lot was expected to sell last year. (By the Weekly’s deadline, four lots were in escrow). The Millses ran out of money and stopped paying most of their obligations. A group of investors filed suit in May, followed by a bank. Lawsuits snowballed from there. The Mills brothers and their entities are now tied up in more than a dozen civil complaints.
“[THEY ARE] THE MOST HORRIBLE BUNCH OF CROOKS I HAVE EVER HAD THE DISPLEASURE TO BE ASSOCIATED WITH.”
Monterey County Bank and two other banks filed the most recent lawsuit against Monterra on Dec. 31. The lawsuit seeks to collect more than $1.4 million on an unpaid deed of trust, says the banks’ attorney Michael Sosnowski. Chapin, whose construction company is also named as a defendant because they have an outstanding lien, says the banks are jockeying for position to get paid from Monterra’s collateral. “It’s going to be like the food line,” Chapin says. “I just hope there is enough food for everyone.” Armanasco says the banks are just protecting their interest in the property through judicial foreclosure. "This is not something that is being launched against the Mills," he says. "This is simply a legal move."
Bank of the West also filed a lawsuit Dec. 26 alleging the Mills’ company, Whole Leaf LLC, and various related businesses defaulted on equipment lease agreements, amounting to more than $575,000 plus interest. The suit asks the court to appoint a receiver to retrieve the bank’s equipment before the Mills brothers transfer the commercial equipment to a third party.
Most of the suits seek money, but one alleges elder abuse.Investors out of luck
Mary Margaret Graham, an 85-year-old Carmel resident, describes the Mills brothers as “the most horrible bunch of crooks I have ever had the displeasure to be associated with.” Graham says the Millses wined and dined her at Tehama before they asked to borrow money. “They told me, ‘Mrs. Graham, we’ve got tons of money, but we are a little short right now,’” Graham says. Using retirement money her late husband left her, Graham loaned them $500,000 on two unsecured notes.
Graham says her $5,000 interest payment came every month until the Millses went broke. “They just stopped sending me any money,” she says. “They stopped answering the telephone.”
She went to the Carmel Foundation and Legal Services for Seniors, but she says they wouldn’t help her because the Mills brothers were donors and it would be a conflict of interest. Carmel Foundation President Jill Sheffield said she wasn’t aware of Graham’s inquiry but says they wouldn’t have had the ability to help her because the foundation doesn’t provide legal services. Michael Benoit, Legal Services’ executive director, says State Bar regulations don’t allow him to discuss cases.
Graham eventually hired Monterey lawyer Andy Swartz and filed a lawsuit June 25 alleging financial abuse of an elder. Monterey County Superior Court Judge Susan Dauphine ruled in favor of Graham Nov. 4, ordering the Millses to pay $537,500 plus interest. According to legal documents, Graham agreed to drop the elder abuse charge in exchange for the Mills brothers’ agreement to pay the debt and make an initial $2,500 payment.
But Graham is still not sure if she will see her money again. Armanasco would only say that the case is settled, declining to elaborate.
The Mills brothers have been hit with two other lawsuits from groups of investors. But other investors say that they don’t think suing will help. They are also afraid to be quoted by name because they worry it will hurt their chances of getting their money back.
One investor who wishes to remain anonymous says he invested several years ago after meeting with Roger, who showed him his net worth of more than $100 million. “Payments were always made,” he says. “[Roger] had signed notes personally guaranteeing them, and based on his financial statement I felt secure. But, unfortunately, we weren’t secured by real estate.”
The investor, who is nearly 70 years old and lives in Discovery Bay, says he loaned about $500,000 to the Mills brothers but hasn’t gotten an interest payment in a year.
After other investments failed, the retired man says he can’t make his mortgage payment any more and may lose his home to foreclosure. “That was a half million dollars I could sure use right now to buy another house,” he says.
But it’s unclear whether the Mills brothers did anything criminal. The anonymous investor was in touch with the Monterey County District Attorney’s Office, but Annie Michaels, managing deputy district attorney, says her consumer protection unit is not investigating the Millses.
Other investors are more upbeat.
Kent Northcross, who lives in Arizona, says he was one of first investors to buy lots at Monterra and plans to ride out the real estate downturn. “I have to live with my investment,” Northcross says. “I still am optimistic that there are other buyers looking into the project.”
Armanasco says the Mills brothers are doing the best they can to repay their debts in a tough economy.
“The Millses continue with their energy and purpose to work through the challenges,” he says. “All you have to do is look around and know that this economy is handing this whole country a mountain full of challenges, and Monterra is not immune to those challenges.”
When news of Monterra’s financial problems surfaced, many banks and the Salinas retirement fund gave the Mills brothers time to get sales going again. Armanasco said Monterey County Bank was working with a consortium of banks to finance the next phase of Monterra. The Sunset magazine Monterey Bay Idea House, which opened Oct. 3, was also meant to inject life into the project.
Sunset describes the house as a “Dream space with a soul” inspired by rustic barn buildings of John Steinbeck country. The five-bedroom home has sustainable features like solar panels and an underground reclamation system. Despite the attraction and the building of a new entrance off Highway 68, lot sales did not improve.
The Millses still haven’t paid all the workers who built the Sunset House, including Messenger Construction Management Inc., which is suing for $52,444, and Travis Construction, the project’s builder that filed a mechanic’s lien for more than $245,000.
While the Millses have the Sunset House listed for $7.9 million, the vast inventory of foreclosed homes across the county and tightened lending practices have made Monterra real estate less attractive.Tough market
Mike Jashinski’s company DMB Realty managed the sales and marketing for Monterra from 2003 to 2006. Jashinski is the realtor for Tehama and now does mainly resells and lists finished homes at Monterra. Sitting in his Escalade outside Monterra’s gated entrance, Jashinski says the development has worth that will transcend the down market. “The underlying value is the Monterey Peninsula,” he says. “This is some of the most coveted resort, residential real estate.”
Indeed, the quiet hillside development has its charm – spread out home sites see more wildlife traversing than humans. But only the upper percentile can afford the price tag. Jashinski says the most expensive lot he sold went for $2.8 million, though Jashinski now has a lot listed for as low as $850,000.
He points out views of the Santa Cruz Mountains and Monterey Bay. Driving to one lot enclosed by oak trees, he says, “this is great combination of views and privacy.”
The development has other perks beside seclusion. People who buy real estate also become members of Tehama’s clubhouse (though not the golf course), which affords sweeping views of Carmel Valley and a mansion Eastwood is building perched on a green hill. Jashinski says both Tehama and Monterra are located in the sunbelt. “Out here in the summer we are in short sleeves playing golf, and you look out on the coastline, and it’s in the fog,” he says.
Sunny as it may be, a cloud will likely hang over Monterra at least until the housing market recovers. When that will happen is anyone’s guess. Buyers are looking for steals, and banks may settle for less than they are owed on foreclosed lots, driving down the value of the land.
“In this market you could buy something today, and it will be worth less tomorrow,” says Jim Petralia, a Monterey-based private money lender and former broker for the Salinas retirement fund. After holding out for months, the fund took Petralia’s advice and started foreclosure proceedings on 13 of its loans in October. The Millses owe the city more than $1 million in interest payments and late fees, and will try to recoup their losses by selling the property.
That’s going to take some time, Kever says, noting the unprecedented downturn in real estate and lending: “We are just going to hold it.” While Monterra’s downfall has put employees’ investments at risk, Kever says returns from the trust deed fund’s other loans are coming in at 3.8 percent. The retirement money of more than 500 city employees is secured by the real estate.
The city fund is not alone. La Jolla Bank in Escondido is trying to regain $30 million in principal by foreclosing on Monterra lots.
“There is a tremendous amount of money at stake there,” Petralia says. “Given the economy and the state of the real estate market, it may be years before everything is settled out there.”
Monterey County Bank, whose president Charles Chrietzberg has been a steadfast ally of the Mills brothers, is even looking to collect, issuing notice of defaults for more than $6.5 million in November.
On Nov. 3 Upland-based Golden State Bank filed a lawsuit alleging Monterey County Bank committed fraud by misrepresenting five Monterra loans as financially sound and concealing the Mills brothers’ money troubles, among other charges. The suit alleges Monterey County Bank and Chrietzberg didn’t disclose numerous financial dealings of Basil and Roger Mills, including asset hiding, transferring properties between family members and business entities and paying their children or grandchildren $1.5 million a year from their development proceeds.
Chrietzberg did not return calls from the Weekly. Armanasco released a statement denying the allegations, saying the suit was trying to “blame Monterey County Bank for a declining real estate market that turned performing loans into nonperforming loans.”
Monterey County Bank Dec. 4 filed a cross complaint against Golden State Bank. The two banks will battle out their differences in arbitration.Bankruptcy ahead?
The Millses secured much of Monterra’s loans when home prices were inflated and lenders assumed the market would continue to rise. “I think everyone was very exuberant in their lending,” Petralia says. “The market was really humming and I think some people let their guard down.”
In defense of the Mills brothers, Donohue says they couldn’t have seen such tough years in agriculture and real estate coming. “That the high-end Peninsula market would collapse, nobody predicted that,” he says.
Armanasco says the sale of Roger’s house and four other sales in 2008, ranging from $3,750,000 to $4,450,000, is proof that Monterra’s value is still robust despite harsh economic times.
With lawsuits piling up and loans falling further into delinquency, the Mills brothers have long been rumored to be on the brink of bankruptcy. Chieftain Harvesting Inc., lead by Basil’s son David, has taken over the sales of Mills Family Farms brands.
The farming giants built their wealth up from a one-man produce brokerage and earned widespread respect in the industry. Their trusted names help them secure tons of loans to deliver their dream development. But they couldn’t sell off Monterra’s lots before the economic crisis hit and are now stuck with expensive dirt.
While the Mills’ positive contributions aren’t lost by their supporters, their integrity has eroded among investors who lost their nest eggs. It will be years before the financial mess is untangled.
The two businessmen who for years had profits to share are watching their assets get auctioned off near the county courthouse and have plenty of civil court dates looming this year alone. Once legends of philanthropy, the Mills brothers are now poster children for today’s economic turmoil.