HUD Gave Special Deal to Lyon Co. : Report Says Firm Bid Lowest in Sale of O.C. Acreage

A key Washington official in the developing HUD scandal gave preferential treatment to a company headed by Newport Beach developer William Lyon, a major Republican contributor, by selling him 827 acres in south Orange County--even though his bid was considered the lowest of four reviewed, according to a HUD internal report.

The report by the U.S. Department of Housing and Urban Development, obtained by the Long Island newspaper Newsday and published Sunday, says that Shirley M. Wiseman, who was an acting assistant secretary in 1985, appointed an internal committee that recommended the sale to Lyon despite a warning from HUD’s general counsel “that the William Lyon Company’s all-cash bid was not the best offer.”

The report, which was issued several months after the 1985 transaction, concluded: “the bidding, negotiations and award practices appear to have been improperly adjusted to secure an award to the William Lyon Company.”

The William Lyon Co. ended up buying Robinson Ranch, the scenic rural property near Mission Viejo, from HUD in 1985 for about $16 million, although HUD documents obtained by The Times estimate that the value of the property was as much as $35 million at the time of the sale.

Lyon, who reportedly contributed more than $200,000 to the GOP during the Reagan years, could not be reached for comment Sunday. Dale Catalde, director of operations at the Lyon Co., declined to comment on the development Sunday, saying that he was not involved in the Robinson Ranch project.

“I’m sure there’s another side and there’s a lot more to it,” Catalde said. “I don’t want to speculate. . . . These sound like serious allegations.”

Wiseman, now president of the National Assn. of Home Builders, testified recently to a House committee investigating the HUD scandal and was praised for her refusal to obey orders from former HUD Secretary Samuel R. Pierce Jr. and his top assistant, Deborah Gore Dean, when they allegedly sought approval for a housing project in North Carolina proposed by an influential Republican developer.

Wiseman, who now lobbys for developers seeking HUD projects, could not be reached for comment Sunday.

HUD became involved in the Robinson Ranch property in 1981 when it gave the Ridgewood Development Co. of Costa Mesa a Title X loan guarantee for $35 million to develop the site, then the largest loan ever issued under the program. In 1984, the property was seized by HUD when the project went into default.

The Title X program was designed to encourage development of difficult projects, such as remote properties that require extensive preparation for construction. In selling the property to Lyon, HUD gave up any role in its development.

HUD Secretary Jack Kemp recently stopped the Title X program, partly because of the high number of defaults. HUD spokesman Jack Flynn told The Times that the department lost between $10 million and $12 million after foreclosing on the Robinson Ranch property and selling it to Lyon.

Ridgewood President Harriet Harris said last week that she is still bitter and confused about HUD’s decision to sell the property before it considered a settlement in which her company could renegotiate the loan and complete the project.

As HUD was selling the property, a frustrated Harris wrote to Secretary Pierce: “We have heard of deals being made by people whose political connections with the department enable them to achieve an inside track and to become the owners of the property. . . . We sincerely hope that these rumors are not true.”

The letter was obtained by The Times under the Freedom of Information Act.

Harris declined to elaborate on the comment in an interview last week, saying she had no proof of her statement.

The HUD report published Sunday said Wiseman initially wanted to sell the property to Lyon based on his bid of $8.5 million, which was less than three other bids being considered. After the warning from HUD’s general counsel, the report said, Lyon submitted a second bid and was awarded the property by Wiseman’s committee on March 7, 1985.

The HUD report was critical of the process because Lyon was allowed to submit a second bid based on a higher rate of development than the others had considered. The report said the other companies were never given the opportunity to prepare a bid based on a higher rate of development and if they had, their bids would have been better than Lyon’s.

Lyon, a retired Air Force brigadier general and chief of the Air Force reserve during the Carter administration, is a major contributor to the Republican cause. He and his wife gave nearly $100,000 to the national party and candidates during the Reagan years and last year contributed $120,000 to the California GOP, according to documents and published reports.

In 1985, the Orange County supervisors had approved 524 homes on the Robinson Ranch property, and HUD allowed the bids to reflect an increase of 1,007 homes in the approved zoning, the report said. Lyon’s original bid was based on the same formula, but secretly the company submitted a second bid claiming he could obtain rezoning for an additional 1,618 homes--for a total of 2,142--according to a HUD memorandum dated Oct. 4, 1985.

The report said the other bidders were not told by Wiseman’s committee that they could modify their bids.

Edwin Baker, a HUD official who worked on the sale in Washington, told The Times that one of the other bidders, Kaufman & Broad Co. of Los Angeles, protested the sale to Lyon in a letter. The HUD report said the Kaufman bid would have been the highest if it had been modified the same way as Lyon’s.

The other bidders were Simpson/Marlboro Co. and San-Jack Enterprises.

After the sale, the report said Wiseman told a representative of one of the losing bidders that Lyon was selected “because it would rezone to 2,500 units to 3,000, and therefore HUD would receive more money.”

A representative from Kaufman & Broad warned the Wiseman committee, however, that the issue of rezoning was “subjective . . . since it would need third-party approval” from the county Board of Supervisors.

After the sale, Lyon applied for an increase in the zoning on the property. But under pressure from development opponents in the county’s rural canyons, the supervisors only approved an increase of 530 additional homes, far short of even HUD’s guess of 1,007.

In a related development, HUD officials contend that in his final days in office, Secretary Pierce personally approved two consulting contracts worth hundreds of thousands of dollars. In one case, the officials assert, Pierce overruled lopsided opposition from experts in the department.

The two contracts were earmarked for companies with ties to a former Pierce deputy and a prominent black Republican couple, said the officials, who asked not to be identified. Despite Pierce’s endorsement, the contracts were eventually put on hold by the new officials at HUD. Jack Flynn, a department spokesman, said both projects are being reviewed, and other officials said agency experts contend that the contracts are unnecessary and poorly designed.

Times staff writers Lanie Jones and Michael Flagg contributed to this report WILLIAM LYON

The developer and big-game hunter is known to friends as “the General.” Page 17.