CITY HALL — The City Attorney’s Office brokered a settlement agreement between two private companies caught in the wake of a developer’s default on its commitment to build 52 affordable housing units in Downtown Santa Monica.

The JSM Corp., which is responsible for much of the housing Downtown, failed to fulfill affordable housing requirements on 11 market rate projects, city officials said. JSM committed to building the units at two off-site locations.

In the wake of the housing market collapse, several properties held by JSM, which were supposed to be developed into affordable housing, were foreclosed on, and two of the company’s investors — MNS Properties and Prudential — were left with both the remaining market rate developments and the requirements to build housing.

Also lost was a $1.1 million security, which had been promised to City Hall if the affordable housing was not developed.

That money had been held in a lien against one of the foreclosed properties.

The two private companies became engaged in a legal battle over the ownership of the properties and money given to JSM president Craig Jones, which they asked the City Attorney’s Office to help resolve, said Deputy City Attorney Alan Seltzer.

Jones left the country in 2010. Robert Tourtelot, a lawyer representing Jones on a different matter, would not confirm his whereabouts Thursday.

“The city participated in the settlement of the Prudential, MNS litigation in a manner that will provide the required affordable housing,” Seltzer said.

Under the agreement announced at Tuesday’s City Council meeting, Prudential will transfer ownership of a property at 1437 Fifth St. to an MNS designee, and refund $1.75 million in deposits MNS gave to Jones for control of that property.

In return, MNS will build the required 15 off-site affordable units required for two market rate projects at 626 and 525 Broadway.

The 15 units will be built at a site on Lincoln Boulevard, along with the off-site affordable housing for three of the other JSM market rate projects. Those agreements were negotiated in August 2010.

In order to ensure that the required housing got built, City Hall mandated that MNS not only complete the housing by February 2015, but also meet specific deadlines for various portions of the project.

MNS needs to have a property picked out for the project by August 2012, a goal which has already been met.

The company will have to complete substantial construction on the project by the following year, which means getting further than digging out the foundation of the building.

Finally, by February 2015, the building must be certified for occupancy through City Hall, Seltzer said.

Attorneys built two layers of security into the deal to protect Santa Monica’s interests.

If MNS does not meet the milestones for the Lincoln project required under the agreement, it will have to deed restrict 15 units as affordable housing in a market rate development on 1548 Fifth St.

On top of that, City Hall will assume ownership of the 1437 Fifth St. property, which is to be developed into affordable housing.

“We think that the security for the performance of this obligation to build 15 units of affordable housing is more than adequate,” Moutrie said.

That additional security comes after city officials were left reeling from the original default, lacking both the promised $1.1 million in security and the affordable housing units.

Under Santa Monica’s affordable housing guidelines, developers may either choose to build affordable housing, or pay an “in-lieu” fee.

The security deposit was meant to be equal to or greater than those fees, which equated to 2 percent of the total costs of building the 52 promised units, as reported in a previous Daily Press article.

Developers who choose to take the more expensive route and build the housing get a fast-tracked process, which leapfrogs certain environmental reviews.

The process has resulted in 900 affordable housing units, said Housing Manager Barbara Collins.

At this point, the default and resulting ownership confusion have not changed the way City Hall deals with developers, Collins said.

“It was an unfortunate circumstance of the economy, and we’re moving forward,” Collins said.

The City Attorney’s Office will present proposals to revise the housing guidelines to the City Council in light of “lessons learned,” Seltzer said.

ashley@smdp.com