South County Builder Puts Survival First

SAN JUAN CAPISTRANO â€”  The beleaguered Santa Margarita Co., one of California’s largest residential landowners, said Thursday that it is negotiating with creditors, getting cash infusions and selling land in an attempt to reverse severe financial woes.

Struggling to survive a real estate downturn that has crippled many Southland firms, Santa Margarita’s restructuring may help it continue as a powerhouse developer rather than decline into a weaker entity reliant on its partners.

A ranching and land development concern founded by two Orange County pioneers more than 100 years ago, Santa Margarita is now the county’s second-largest landowner. It owns 12,000 acres and manages an additional 25,000 acres in southern Orange County.

Sagging home sales and falling land values have eroded the company’s profits and revenue and increased its debt burdens. The company borrowed heavily to finance projects that it now has trouble developing and selling, and those assets that it can sell are fetching much lower prices.

A collapse by Santa Margarita would be yet another major blow to the county’s and Southern California’s real estate industry. Last year, two Orange County home builders, Baldwin Cos. and Bramalea, filed for bankruptcy protection.

Santa Margarita said Thursday that it recently negotiated for a $24-million cash infusion from two of its major development partners, Copley Real Estate Advisors in Boston and the California Public Employees Retirement Systems (CalPERS). It will also sell land and continue negotiating to repay its lenders.

The company’s financial woes increased last year after a planned merger fell through with Western National Group, an apartment owner in Orange. Santa Margarita laid off 16 of its full-time real estate workers, leaving it with 70 employees.

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Company leader Tony Moiso, great-grandson of pioneer rancher Richard O’Neill, was on an ocean cruise and wouldn’t comment Thursday. But real estate insiders said the company still has serious financial obstacles to overcome.

“Their recovery really depends on improving real estate conditions here,� said Ken Agid, an Irvine real estate consultant. “Everyone takes for granted that if you are a large developer you are fat and happy. But I don’t know of one that has made a profit in the past five years.�

The test will be the San Juan Capistrano-based company’s ability to make good on nearly $100 million of outstanding debt, including $23.5 million in loans with First Los Angeles Bank on the developer’s Ladera project, a 6,000-acre proposed community south of Rancho Santa Margarita, sources said.

To survive the downturn and develop its large land holdings, the company has increasingly turned to partners Copley and CalPERS.

Copley, which currently invests $7 billion primarily for pension funds and insurance companies, has invested in Santa Margarita Co. since 1985 and currently owns half of Rancho Santa Margarita, a 25,000-resident community that is the developer’s biggest project.

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Copley, one of the nation’s largest real estate investors, is a subsidiary of New England Investment Cos., a publicly traded investment advisor. Copley has always been an active participant in Santa Margarita’s operations.

“When we got in this we knew it was at least a 20-year time frame--some times would be good and some would be not so good,� said Joe O’Conner, Copley’s president and chief executive. “We’re strongly committed to the vision of Tony Moiso and are bullish on the long-term prospects for residential development in Southern California.�

Copley recently agreed to give the company an additional $4 million for operating capital and to pay back contractors, O’Conner said.

As part of the investment, Copley may take a larger role in company operations as Copley consultant John Kelterer starts working out of an office at Santa Margarita. Kelterer is a former Merrill Lynch & Co. broker who put together the joint partnership between the two companies in 1985.

“Copley has always been involved in our day-to-day operations, but they may take on a little more,� said Diane Gaynor, spokeswoman for Santa Margarita Co.

CalPERS, the nation’s largest public-employee pension fund, announced in January 1994 that it would invest $20 million in a 50-50 partnership with an affiliate of Santa Margarita Co. The new partnership would develop Las Flores, a 1,005-acre community that could include up to 2,000 homes in the southeast area of the county.

CalPERS recently committed an additional $20 million to retire debt for the project, said Kirk Davis, chief financial officer with Institutional Housing Partners Inc., an advisor to CalPERS.

“We felt that retiring the debt was in the best interests of the project. It’s going to take five years to sell this out,� Davis said. “This will take care of it.�

As part of the restructuring, Moiso will sell Tijeras Creek Golf Club. Other properties may soon go on the block, including portions of Ladera, although Moiso is also looking for a joint venture partner, possibly Lewis Homes of Upland.

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Santa Margarita is also planning to sell more than 550 housing lots in Rancho Santa Margarita to pay back lender Bank of America, which has declared that $26 million of loans to a company partnership with Fieldstone Co., a Newport Beach home builder, were in default.

There is strong interest for the land among developers and home builders, sources said, and the company should have no trouble selling it. But it might not get the price it wants.

“There is more equity in Santa Margarita than you or I could ever hope to see. That land is a perfect target for a large, publicly owned home builder,� said one insider working on the restructuring.

But if Orange County’s troubled real estate market doesn’t improve--home sales fell more than 15% last year--Santa Margarita will continue to scramble.

“This better work because what we really don’t need in this county is for Santa Margarita to go under,� the insider said.

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Up for Sale

Financially strapped Santa Margarita Co. is attempting to raise cash by offering portions of its holdings for sale:

1. The Heights: 65 undeveloped acres planned for 600-700 apartments, condominiums, townhomes and detached homes

2. The Vistas: 115 undeveloped acres on which about 600 detached homes are expected to be built by Fieldstone Co.

3. Mercado del Lago: 45,000-square-foot shopping center anchored by Ralphs

4. Santa Margarita Town Center: Partially developed 250-acre retail, office and residential area; major tenants include Target, Big 5 and Family Fitness and planned Edwards Cinemas

5. Plaza Antonio: 162,000-square-foot shopping center anchored by Vons

6. Business Park: Partially developed 450-acre office/industrial center; major tenants include Loral Aeronutronic and Unisys

7. Tijeras Creek Golf Club: 175-acre, 18-hole public golf course with putting green, driving range and clubhouse with pro shop, locker rooms and restaurant

8. Ladera: 6,000 acres recently approved for development

Source: Santa Margarita Co.; Researched by JANICE L. JONES / Los Angeles Times