Did CIM Group Inc. play the investment game too well?

The embattled real estate company is saddled with three South L.A. properties acquired during its buying spree of a few years ago, when it had plenty of easy money from pension fund investors, including the California Public Employees’ Retirement System.

Today, the projects remain largely incomplete, and the Hollywood company finds itself embroiled in a scandal for allegedly paying or granting favors to businessmen who directed pension fund investments to it. Some fear the allegations can only make it harder to finish the developments.

The most visible project, Midtown Crossing, in a neighborhood devastated by the 1992 Rodney King riots, was supposed to include a Lowe’s home improvement store in its $163 million second phase. But that portion of the development is still nothing more than a large dirt pit.

“We needed that Lowe’s,” said Robert Rubio, a nearby resident and co-founder of Save Leimert Neighborhood Coalition. “Any news of difficulties that we hear CIM is having beyond regular recession problems is disheartening for us because we really want to see these projects.”

CIM has come under scrutiny for its relationships with two businessmen who helped it get investments from pension funds, according to widely published reports.

The Los Angeles Times reported last month that a loan from a partnership set up by CIM partly financed the construction of a Lake Tahoe mansion for Alfred J.R. Villalobos, a former Calpers board member who later served as “placement agent,” connecting businesses seeking money to the fund. The Sacramento Bee reported Villalobos ultimately helped CIM get $405 million in investments from the fund.

CIM also has been linked to Elliott Broidy, who pleaded guilty Dec. 3 to charges related to illegally giving gifts to New York pension officials. As a member of the Los Angeles Fire and Police Pension Board, he voted for giving CIM a $30 million investment. The vote has been scrutinized because CIM principals invested in Markstone Capital Partners LP, which was chaired by Broidy until he resigned earlier this month.

CIM issued e-mail statements denying a pay-to-play relationship with either man.

“CIM has used placement agents to assist in preparing marketing materials and to arrange introductions to representatives of potential investors, and CIM’s retention of placement agents has not involved any sort of ‘pay to play,’” the statement said.

Midtown Crossing

CIM, which owns the Hollywood & Highland retail center and developed the Market Lofts condo projects downtown, is one of the more prominent development firms in Los Angeles.

It’s unclear exactly where CIM deployed its Calpers investments, and the developer would not comment on the matter. A Calpers spokesman declined to do so in an e-mail, citing “proprietary, contractual and competitive reasons.”

However, it is known that at least the Midtown Crossing property was acquired with pension fund money.

CIM purchased the 12-acre Midtown Crossing site at San Vicente and Pico boulevards with an investment from Calpers and the California State Teachers’ Retirement System, another large pension fund.

CIM opened the first phase of the project in 2006; it includes a Wells Fargo bank branch, a Starbucks and a Foot Locker store, among other tenants. However, the company has been unable to secure financing for the 300,000-square-foot, two-story second phase, according to Leslie Lambert, a regional administrator for the Community Redevelopment Agency of Los Angeles. She said the project will get about $14 million in public financing once it breaks ground.

However, that financing is not adequate to complete the development. “They lost part of their financing; they are exploring other financing options,” Lambert said.

Andrew Westall, senior deputy for City Councilman Herb Wesson, said that the project may receive a Recovery Zone Economic Development Bond, a new financing tool created by the federal government’s stimulus plan.

The city is reviewing CIM’s application for $35 million in bonds. The application would have to be approved by both the city and federal government, and then the bonds would have to be issued and sold. “It’s creative,” Westall said.

If all goes smoothly, he said the project could break ground as early as spring 2010 and open in summer 2012.

Other projects

CIM’s two other projects in the area also have not broken ground. They are both partnerships with the development arm of South L.A.’s influential West Angeles Church of God in Christ, called the West Angeles Community Development Corp., or CDC.

The two projects are south of Midtown Crossing along the Crenshaw Corridor, which stretches four miles along Crenshaw Boulevard south of the Santa Monica (10) Freeway. The corridor is the leading commercial neighborhood in South Los Angeles. And the planned light-rail Exposition Line that will run through it to downtown has made it a promising area for development.

CIM partnered with the CDC to purchase a 1.1-acre parcel at 3501 W. Jefferson Blvd. in 2006. The property, which houses a Union Bank branch, is slated for 45,000 square feet of office and retail space in a two-story building.

Construction on the roughly $12 million development, called West Angeles Plaza, was supposed to begin in 2007, but was stymied by a resident in the area who asserted that the bank building was historic. The city sided with the developers and the project is now expected to break ground in summer 2010 if financing can be obtained.

So far, the developers have secured some financing from the U.S. Department of Housing and Urban Development with the assistance of Wesson’s office, but the project does not yet have a construction loan. CDC Chief Executive Lula Balton said the second floor may be eliminated from the project.

In total, the partnership has spent about $2 million on the project, according to Tunua Thrash, the CDC’s project manager.

The other CIM-CDC property is further behind schedule. The developer partnered with the CDC to purchase a portion of the vacant 1.6-acre property at 5415 Crenshaw Blvd. in 2006. Other pieces of the development site – called West Angeles City Place – are owned by the city of Los Angeles and the CDC. Construction was supposed to start last year on up to 100 condos and 30,000 square feet of retail space, but the condominiums are being reconsidered, Balton said. There is no timeline for development.

‘Deep pockets’

It is not entirely clear how the scrutiny is affecting CIM’s ability to complete the projects. Westall said he didn’t think that the attention CIM has gotten over its relationship with Villalobos had affected Midtown Crossing.

Thrash also said that she hasn’t noticed a change in the way CIM handles the projects since news of the Villalobos and Broidy relationships broke.

“I still work with the same staff people. We don’t talk about that; I’m not really sure what is going in that part of their world,” she said.

For its part, CIM’s e-mail statement said it “remains actively involved in and supportive of development in South L.A.”

Rubio said that community stakeholders in South Los Angeles have looked to companies with “deep pockets” like CIM with hope that they would be able to pull off the sorts of projects the area needs. Though he was unfamiliar with the details of CIM’s relationships with Villalobos and Broidy, Rubio said any troubles beyond the typical recessionary woes wouldn’t bode well for projects like Midtown Crossing.

“That big hole just sitting there is a big letdown,” he said.