Page Mill investors sue firm over millions

Investors claim Palo Alto company committed fraud, misled them in East Palo Alto 'scheme'

Palo Alto-based property manager Page Mill Properties committed securities fraud, misled its investors and engaged in an illegal and "morally offensive" plan to gentrify a portion of East Palo Alto, a group of Page Mill's investors is alleging in a lawsuit against the beleaguered real-estate company.

Page Mill, which until recently was the largest landlord in East Palo Alto, has been facing a storm of criticism since 2007 from East Palo Alto's tenants, tenant advocates and city officials, many of whom accused the company of engaging in a "predatory equity" scheme and of flouting the city's rent-control ordinance. But as court documents make clear, the company has also been fighting a legal war with its own investors, who committed to investing $30 million to a now-crumbling fund and are accusing Page Mill of withholding crucial information and misleading them about its East Palo Alto portfolio.

The conflict between Page Mill and 19 of its investors -- including more than a dozen experienced real-estate developers -- reached a boiling point last October, a month after the company lost its East Palo Alto holdings to foreclosure. On Oct. 12, frustrated investors voted to oust Page Mill CEO David Taran from his position as the manager of the Page Mill Properties Access Fund, a real estate fund that Taran set up to finance the East Palo Alto portfolio.

In the Oct. 12 "written consent," the investors wrote that they have "lost all faith in Access Fund Manager's ability to manage the Company, and legitimately fear that Access Fund Manager, if allowed to continue as managing member and manager of the company, will continue to pursue its own improper self-interests, thus causing both the company and its members further and irreparable harm." The investors also voted to appoint Alpine Road Management, LLC, as the fund's new manager.

Two days later, Page Mill officials advised the investors that they considered the request for a management change "void." The two sides are now looking for an arbitrator to help them settle the dispute, said attorney Steven Morger, who is representing the investors.

According to Morger's complaint, Page Mill began soliciting the investors' participation in May 2007, when it provided them with a "private placement memorandum" explaining the company's investment strategy. The document, according to the complaint, was "based on a slickly crafted pitch that combined (Bernard) Madoff-like airs of exclusivity with projections of 'consistent and superior risk adjusted returns.'"

The 68-page document describes the East Palo Alto portfolio as an area "poised for growth and gentrification." The plan calls for engaging East Palo Alto in a public-private partnership, developing condominiums, fixing up the infrastructure and "further developing community-oriented retail and service business."

But as the complaint states, Page Mill also failed to mention a few key tidbits about its East Palo Alto portfolio. For one thing, the portfolio was losing about $1.5 million a month at the time Page Mill approached the investors and was a "literal black hole of operating losses." The company also didn't disclose to its investors that its new East Palo Alto holdings are subject to the city's rent-control ordinance -- a detail that severely complicated Page Mill's plans to raise rents and achieve an internal rate of return of 20 percent.

The company's plan for a private-public partnership with East Palo Alto also didn't go as planned. Instead, Page Mill became entangled in about a dozen lawsuits with the city, many of them centering on the rent-control ordinance. The company successfully challenged the city's attempt to revise the ordinance last year, forcing the city to delay the vote until this June. Page Mill also petitioned San Mateo County to remove the Woodlawn Park neighborhood from East Palo Alto's jurisdiction.

One investor, Paul Magliocco, wrote in a declaration that Page Mill materially misrepresented and fraudulently concealed material fact, "falsely portraying the Fund as an ongoing success with bright future prospects." Magliocco, who has been affiliated with the angel investor network Keiretsu Forum, wrote that he would never have invested in the fund had he known about the "scheme to evade rent control laws."

"From a purely economic perspective, it rendered the investment far too risky," Magliocco wrote in the Dec. 7 declaration. "At least as importantly, I find the scheme morally offensive.

"This investment was sold to me and my fellow investor members as socially conscious and community beneficial. That was a cynical lie.

"Page Mill's scheme was exploitative and damaging to the East Palo Alto community fabric, forcing many residents out of their homes with huge (probably illegal) rent increases. Had I known the truth, I would have wanted absolutely no part in it."

The investors are also claiming that Page Mill had failed to inform them of the $50 million loan payment the company was scheduled to make to Wachovia by Aug. 1, 2009. Page Mill failed to repay the loan and, as a result, lost control of its 1,812 units to a court-appointed receiver in September.

The company's default apparently surprised the investors, who were repeatedly assured that everything was going according to the plan. In November 2008, Taran had made a presentation at an investors' meeting at the HP Pavilion in San Jose in which he was reportedly "upbeat about the (East Palo Alto) portfolio's performance and prospects." At that meeting, Taran projected a $1.5 million operating profit "six months forward," according to the complaint.

By the third quarter of 2009, it became clear to everyone that the fund was doomed. The missed loan payment and the subsequent foreclosure wiped out Page Mill's then-$12 million fund and angered the investors. On Aug. 13, more than a week after Page Mill defaulted on the loan, the investors were "first warned that there might be a problem," the complaint states. Less than a month later, the San Mateo County Superior Court appointed a receiver, Wald Realty Advisors, to oversee the properties.

Beside Magliocco, the list of plaintiffs also includes 14 Crow Canyon Corporation, Dennis A. Chantland, Diablo Capital Venture Fund, Randy Haykin, John Quandt, John Adams, Shane Albers, Colin Wiel Investments, Dina Partners, Kevin Grauman, John Hammergren, James Levine, Neal Mitchell, David Pottruck, William Powar, John Staples, Kenneth Stevens and Vertical Venture Capital.

While the investors have attributed the fund's collapse to Page Mill's fraudulent conduct, Page Mill has characterized their complaints as an attempt to skirt a contractual obligation. Under the agreed-upon terms, City National Bank fronted all the money for the fund with the understanding that it could later call on the investors to repay it.

Early last October, when it was clear that the investment was tanking, the bank asked the investors for $14.8 million in repayments. The investors declined to pay and are now suing the bank, claiming that it was complicit in luring them into Page Mill's scheme.

Page Mill's attorney, Christine Morgan, characterized the plaintiffs as a "self-described group of elite, sophisticated, well-educated and wealthy professionals" who should've known what they were getting into.

Albers, for example, serves as chairman and CEO of Investment Mortgage Holdings, a company that manages more than $700 million in real estate investments, Morgan wrote. Vertical Venture, meanwhile, reportedly has more than 15 years of experience as a real-estate developer and investors.

Their latest challenge to Page Mill is basically about the plaintiff's "attempt to avoid honoring their obligation to pay for a group of investments that might fail," Morgan wrote. Page Mill initiated arbitration proceedings against three of the plaintiffs.

The three plaintiffs, Albers, Grauman and Vertical Venture, were ordered by the courts to pay a total of $2.8 million, Morgan wrote.

Taran also disputed the investors' argument that the company misled them into making a risky investment and failed to disclose its financial obligations. The $50 million loan from Wachovia was used to refinance a much larger loan from Greenwich Capital Financial Products, Taran wrote -- a loan of which the investors knew, or should have known. Without the Wachovia loan, the Greenwich loan would have matured in December 2009 and would have required the company to pay Greenwich about $125 million, he said.

The agreed-upon strategy was "to leverage a leveraged investment," Morgan wrote.

"However, as do all leveraged real-estate investments, Access Fund had risks, and Plaintiffs were thoroughly advised of them," Morgan wrote. "It should come as no surprise to this sophisticated group, particularly given the real-estate market meltdown and credit crisis, that the Fund could, and did, lose money."

What is democracy worth to you?
Support local journalism.


Like this comment
Posted by Chris Lund
a resident of East Palo Alto
on Apr 1, 2010 at 5:59 pm

Please visit for more information on Page Mill Properties, the East Palo Alto apartment portfolio, and this lawsuit.

Like this comment
Posted by EPA resident
a resident of East Palo Alto
on Apr 1, 2010 at 6:11 pm

I am glad to see the Daily cover this. It confirms what everyone who lived in a Page Mill Apartment already knew: David Taran aka Page Mill appears to be a thief and a fraud. The truth needs to come out on this one. Calpers gave $100 million of public retiree money to this scheme that was illegal. Where is the District Attorney? Where is the Attorney General?
The SCC? Someone should be behind bars.

Oh, and shame on you Mr. Morgan for trying to blame this on "general market conditions." People who saw Page Mill in action know that they were not trying to play by the rules, or by the market. Someone needs to dig more here.

Like this comment
Posted by interested party
a resident of East Palo Alto
on Apr 1, 2010 at 6:55 pm

While it's clear that David Taran is greedy, deceitful, and ruthless. I'm not buying it for a minute that these other folks who lost their money were clueless about what they were getting into. Let's be honest, if the nasty predatory equity scheme had worked out as planned, we wouldn't have heard a peep out of these folks.

Like this comment
Posted by Reader
a resident of Community Center
on Apr 1, 2010 at 8:19 pm

EPA Resident,

It's the Weekly, not the Daily, that developed the story. Give credit where credit is due.

Like this comment
Posted by Hmmm
a resident of East Palo Alto
on Apr 1, 2010 at 8:28 pm

I think it's sad, ironic and funny that all the super smart, experienced investors suing the carpetbagger Taran didn't know EPA has rent control. It has for 22 years. It's one of our community values, which is why it exists. You can Google East Palo Alto rent control and see the current ordinance online. Not that these people deserved to be ripped off, but it seems apt that they were duped about something that us thousands of less educated, less monied, less powerful people know.

I hope that they win in court, as they deserve. Moreover, I can't wait to read about the feds getting involved in investigating all of this corruption.

EPA is not here to be gentrified by outsiders. We are steering our own course, steadily, with challenges and setbacks, but with dedication and commitment. It is OUR value to keep homes affordable and we have worked to that end and continue to do so. Perhaps if Taran's investors weren't motivated just by greed, they could've performed additional due diligence to make sure Taran wasn't conning them. But instead, they went for it, and have lost so much. Many of us surmised they were likely operating at a loss and might fail in their scheme, once we all saw how much property they were buying. Not that long ago I was posting on this forum how bad things were, that PMP couldn't be trusted, that the scheme was shady and so many supposed better informed types jumped all over my posts, as well as others who posted criticism. So many non-residents operated by their assumptions, dismissed our concerns, complaints and accumulated knowledge and experiences with PMP. Funny how people think they know better than us here in this community.

Like this comment
Posted by Will never invest in EPA
a resident of Old Palo Alto
on Apr 2, 2010 at 9:05 am

What EPA residents who ousted Page Mill fail to understand is that they scared the @#$% out of future investors. Nobody in their right mind will consider investing in properties or businesses in EPA. So go ahead and "gentrify" EPA with your own means, EPA residents.

Like this comment
Posted by anon
a resident of Menlo Park
on Apr 2, 2010 at 9:45 am

Actually, the Daily wrote the story last week.

Like this comment
Posted by Resident
a resident of Menlo Park
on Apr 2, 2010 at 9:46 am

As Hmmmm points out, "You can Google East Palo Alto rent control and see the current ordinance online."
According to the article, the investors included "more than a dozen experienced real-estate developers". And supposedly at no point during their due diligence did these investors bother to investigate housing laws in the area? Ridiculous.
They are only complaining now because they got caught.

Like this comment
Posted by SP
a resident of East Palo Alto
on Apr 2, 2010 at 10:58 am

To "Will never invest", well, you are wrong about whether people will invest here. I have, and many others have, and are doing just fine. Home Depot, Ikea, and certainly Mi Pueblo are not bemoaning their investments here.

If you haven't been to Mi Pueblo, you gotta go, its really a great place to shop. The food is great, and really unique, and prices are great too.

PMP was not investing, it was attempting to do gentrification on a grand scale, a reverse "block busting". They started from day one promising investors 20%+ returns. That should have been a huge red flag for everyone, including the investors. 20% return is a ridiculous number, certainly you can't do that under rent control. It isn't rocket science to figure out what was going on.

The whole deal is fishy. David Taran is an advisor to the bank that made the loan that is being called. He got these guys to back the loan with no money down. In other words, they keep the money in their own account, but they still get a return on their "investment", and they only have to actually give up their money if the whole thing falls apart. The money from the bank was used to make payments on a different loan from another bank. I bet the banks are not too happy about hearing that. The whole thing smacks of Ponzi.

Like this comment
Posted by Hmmm
a resident of East Palo Alto
on Apr 2, 2010 at 12:53 pm

We never ousted PMP. Their predatory equity scheme, predicated on the inflated rela estate market, collapsed with the market. They got what they had coming to them.

Gentrification is a gentirfied word for predoary scheming in this case. What they did was illegal and morally indefenisble.

EPA needs to continue to learn to steer its own course, and protect itself from carpetbaggers.

Like this comment
Posted by Hmmm
a resident of East Palo Alto
on Apr 2, 2010 at 1:11 pm

SP, you nailed it! The whole scheme has unraveled. I wonder if Taran's wife's "Happiness Project" organization can leerage this unique opportunity to get differing views on what happiness means to different people and how much money plays a role in happiness. Or greed. Or conning others. Not to mention lying to potential investors, harassing tenants, evicting them illegally, and oh, yes, illegally spying on tenant activists as well.

Like this comment
Posted by ann
a resident of Los Altos Hills
on Apr 2, 2010 at 6:06 pm

epa resident....2nd comment ....calpers lost 100 million of this caper....that is completely you have any more info on this or a reference or link that i could go are right....someone has some explaining to do...

Like this comment
Posted by Crescent Park Dad
a resident of Crescent Park
on Apr 4, 2010 at 6:57 am

Rationally speaking it is much more difficult to attract residential investment in a rent controlled city. Whether the investment sources come from in or outside the community, a savvy investor does not like the idea of having a hand tied behind one's back. There has been some very nice commercial/retail investment in EPA - but those investments are not hamstrung by residential rent control.

The reality is, like it or not, successful real estate development in EPA will require monies from resources outside the city. In order to have nicer rental properties or apartment buildings, the city may want to consider policies that draw investors but still protect renters.

Like this comment
Posted by Hmmm
a resident of East Palo Alto
on Apr 5, 2010 at 9:33 am

Crescent Park Dad- your posts are always thoughtful an rational - thank you. I know there is a definite downside to rent control, yet I understand and share it as a value in EPA. There are some good options for landlords and incentives to keep properties up, mostly aimed at mom and pop type landlords. Being a landlord is never particularly easy, but at least the folks who have bought in EPA since 1988 had the awareness of rent control and it was their choice to purchase.

The City has been looking at various options. Being vulnterable to PMP via loopholes and an army of attorneys hasn't been easy on the City of residents. What I struggle with is that outsiders rarely see or acknowledge the pros of rent control, and there have been definite pros, but it's not for someone looking to make a fast buck.

I also must say that in a rent controlled city, renters have plenty of rights and therefore are often more willing to be active in the community, walk their talk and contribte to the wellbeing of the whole community. There is such a discrepancy between homeowners and renters in so many places, that rent control actually evens that out a bit, even if it's just by the awareness a tenant has of their rights. It's tiresome to be treated as someone w/few rights because of renting.

Like this comment
Posted by JC
a resident of East Palo Alto
on Apr 10, 2010 at 8:24 am

PMP deserves everything that is happening to them. The words I used to describe them at a Cal PERS Board Meeting are, "dishonest," "manipulative," and "use tactics of intimidation and harrassment."

There is a real need for affordable housing. People in PA and MP and other well-to-do communities have a very pleasant way of life, in part, because of the low-cost labor done by people in low-income communities like EPA. EPA residents work in grocery stores and restaurants, do yard work, clean houses, take care of children, work at Stanford Hospital, work as crossing guards, and do many other jobs that are essential for the survival of well-to-do communities. People who provide this labor need places to live that they can afford.

Posted by Name hidden
a resident of Menlo Park

on Jul 27, 2017 at 9:22 am

Due to repeated violations of our Terms of Use, comments from this poster are automatically removed. Why?

Sorry, but further commenting on this topic has been closed.

Stay informed

Get daily headlines sent straight to your inbox.

Su Hong Palo Alto's last day of business will be Sept. 29
By Elena Kadvany | 12 comments | 4,300 views

Electric Buses: Challenges and Opportunities
By Sherry Listgarten | 22 comments | 2,671 views

Troubling safety issues in our fair city
By Diana Diamond | 16 comments | 1,313 views

Natural Wines?
By Laura Stec | 1 comment | 865 views

Premarital, Women Over 50 Do Get Married
By Chandrama Anderson | 0 comments | 821 views


Register now!

On Friday, October 11, join us at the Palo Alto Baylands for a 5K walk, 5K run, 10K run or half marathon! All proceeds benefit local nonprofits serving children and families.

More Info