FINAL REPORT - San Bernardino Superior Court

Section 4: SCLA Hangar Development
City and SCLAA management did not put proper controls in place during the project to ensure
that outside contractors: (1) sufficiently performed their duties; (2) used public funds efficiently;
or, (3) were prevented from misusing public funds. The lack of controls is evidenced by the
inability of City management to account for the entirety of public funds, including nearly $13
million provided to CBS Aviation Development.
Hangar Development Initially Self-Funded by CBS Aviation Development
In September 2005 the City Council, in its role as the SCLAA Board, entered into a no-bid
contract agreement with CBS Aviation Development, LLC for the development of hangar
facilities at Southern California Logistics Airport. The development agreement reportedly was
based on a proposal put forward by the manager/owner of CBS Aviation Development, an
individual with no prior relationship to the City or the airport. Further, there is no evidence that
this proposal was documented in writing. 1
The ground lease agreement with CBS Aviation Development stipulated that the company would
construct two aircraft hangars by December 31, 2005 (within three months of contract execution)
and a 200,000 square foot cargo complex by December 31, 2006 (within 15 months of contract
execution) at the contractor’s “sole cost and expense.” At the time the lease was executed there is
no evidence that CBS Aviation Development, SCLAA, or City officials had estimated the costs
associated with constructing the facilities. Rather, it appears that City and airport officials simply
relied on the contractor to plan, manage, and finance the project independently.
The lease had a term of 40 years and noted that “upon completion of the facilities, Lessee [CBS
Aviation Development] seeks to lease the facilities to prospective tenants who are engaged in the
business of cargo transport and aircraft maintenance and development, and then sell the leased
facilities to one or more institutional investors.”
Contractor Poorly Vetted
There is no evidence to show that City management conducted sufficient due diligence on CBS
Aviation Development or its owner prior to entering into a lease agreement (in September 2005)
and later a loan agreement (in November 2005) with the contractor. Specifically, there is no
documented evidence to show that City management conducted adequate background research
on CBS Aviation Development, its owner, or Arizona Building Systems, Inc. (another company
affiliated with the owner) until November 29, 2005, two months after the lease agreement was
executed and about a month after the loan agreement was established. Notably, City management
conducted a limited background check three days before the funds were disbursed.
The City Attorney’s Office has stated that the former Southern California Logistics Airport
Director contacted officials from the Sky Harbor Airport in Phoenix, Arizona in July or August
of 2005 to determine whether or not the owner, CBS Aviation Development, or their Arizona
affiliate, ABS had performed adequately in connection with prior projects. The City Attorney’s
Office has also asserted that, as a result of the contacts, the Airport Director learned that the
owner’s “companies successfully caused the construction and completion of cargo facilities at
1 Although a copy of any proposal documentation was requested, no such documentation was provided.
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Harvey M. Rose Associates, LLC