Developer Ordered to Pay $50M in SF Spec Home Debacle

Gregory Malin and his San Francisco-based Troon Pacific promised to build five spec mansions as homes for healthy living.

A California arbitrator has now ruled in favor of investors who backed four of the projects and claimed Malin and his firm squandered $35 million through self-dealing, fraud and embezzlement, the Wall Street Journal reported.

The unidentified arbitrator ordered Malin and Troon to pay more than $50 million in damages and legal fees.

Malin and Troon have denied wrongdoing, saying the fees they received were authorized and that they acted in good faith. Rather, they said losses stemmed from COVID, changing economic conditions and San Francisco’s lengthy permitting and approval process.

“We strongly deny the allegations, and we are confident we will reverse the ruling,” Malin said in a statement to WSJ, adding that he plans to file a petition to vacate the award.

Malin said the ruling was based on “overblown figures, dubious ‘expert’ testimony, and information that has been misrepresented and twisted into false allegations by very wealthy investors understandably upset about having losses on their investments,” according to an unidentified spokesperson.

Kyle Withers, an attorney for investors in four Troon projects, said in a statement that Malin is clinging to a “false narrative” that was rejected by the arbitrator.

Malin founded Troon Pacific in 1999 with his late wife. In 2010, he sold a Pacific Heights house for $13.5 million after buying it for $6 million and turning it into a platinum LEED-certified green residence with fresh filtered air. Malin then began marketing healthy living, including clean air, as an amenity on his projects.

As a tech boom fueled San Francisco’s luxury market between 2012 and 2016, Troon snapped up five San Francisco properties for between $1.4 million and $16 million, with plans to develop them into luxury single-family homes, according to property and court records cited by the newspaper.

In 2017, Troon was accused by the city of demolishing parts of a historic house on Russian Hill, which he bought five years earlier for $4.5 million, without a permit. Troon paid a $400,000 settlement to the city without admitting wrongdoing.

The developer rebuilt the house at 950 Lombard Street, adding a basement art gallery, and listed it in 2018 for $45 million. It also listed a 12,200-square-foot spec home in Cow Hollow with a 72-foot lap pool and a steam shower with a chromotherapy rain head for $46 million.

Troon became a rare high-end developer in San Francisco, where steep land and construction costs deterred other builders, according to the WSJ. Local agents said Malin’s properties were priced unrealistically high, and he initially seemed unwilling to negotiate.

The Russian Hill house sold in 2020 for $27 million, 40 percent less than its asking price. In 2021, the Cow Hollow home sold for $32 million, or 30 percent lower than its original price.

As high-end home sales in San Francisco picked up during the pandemic, Malin sent investors quarterly reports that painted a “rosy picture” of Troon’s projects, Withers said. At the same time, construction deadlines and projected sales dates were repeatedly extended.

An investor in the Russian Hill project sued the developer to recoup $216,284 of a $400,000 loan, according to the WSJ. In 2021, an arbitrator sided with the investor.

Eventually, investors in the four projects demanded a look at Troon’s books, Withers said. “The underlying financials tipped them off to the unfortunate reality, including that Malin had been taking millions of dollars in previously undisclosed fees,” the attorney said.

In 2022, investors backing the four projects filed a demand for arbitration, saying Malin only completed two of the homes, and lost their money. The investors alleged that Malin had orchestrated a “criminal scheme” that involved overbilling and inflating fees to fund his “extravagant San Francisco lifestyle,” according to court documents.

They accused Malin of paying himself more than $14 million, including development and general-contracting fees, which he collected because he owned 50 percent of Impact Builders, the general contractor on the projects. They accused him of double billing.

And they accused Malin of commingling investor funds, treating Troon’s assets as his own and hiring “inexperienced and unqualified” staff, such as Troon’s property manager, who was also his personal chef.

In July, Malin filed for bankruptcy on behalf of the fund bankrolling the four projects, arguing that costs swelled to more than $40 million because of “exorbitant” permitting times, increased taxes, interest rates and construction costs that coincided with a market slowdown. He personally lent money to the projects to buy time in hopes the housing market would recover, he said in bankruptcy documents, and Troon didn’t profit “one iota.”

The filing was dismissed in August.

Ultimately, the arbitrator sided with investors, saying Malin and Troon breached their fiduciary obligations. He ordered Malin and Troon to pay $48.1 million — all of the investors’ equity plus an 8 percent preferred return, according to their operating agreement.

— Dana Bartholomew