Bell Canada to Acquire Daon Development Co. : Seeks Controlling Interest in Firm Whose Lightning Rise Ended With the Recession
Bell Canada Enterprises, a giant Canadian entity that controls the Bell Canada phone company and several other sizable firms, including Canada’s largest pipeline company, has announced its intent to acquire controlling interest in Daon Development Corp., the Vancouver B. C. real estate company that invested heavily in Southern California before the recession hit.
Along with the announcement, Daon’s board of directors unanimously recommended that Daon’s Canadian shareholders accept Bell’s offer of $3 a common share. The offer was not extended to U. S. holders of Daon common shares, who may market their shares, however, on the Canadian exchanges.
George MacFarlane, Daon’s outside public relations spokesman in Vancouver, said, “The shares have been trading for $2.97 to $2.98, so a lot of people have been trading to advance their positions clearly and quickly. After all, nobody knows whether or not the shares will climb after the deadline.” Bell’s offer will remain open until 4:30 p.m. Feb. 13.
Of all the Canadian firms that invested in U. S. real estate during the late 1970s and early 1980s, Daon was one of the most fascinating because of its lightning-like rise and fall. After the company first entered the American market in 1976 with a small office in Newport Beach, it quintupled its profits to $51 million and nearly quadrupled its total assets to $1.67 billion in four years.
At its peak in 1981, its stock was selling on the Toronto Stock Exchange for $13.50 a share. Much of this success has been attributed to its U. S. operations, and in particular its condominium conversion and land development activities in Southern California.
Catalina Island Venture
Daon also entered into a Catalina Island joint-venture, however, that did not then prove so successful. Like some of its other Southland projects, it was stymied when Daon was hit by high interest rates and other effects of the recession that brought the firm to the brink of bankruptcy and the value of a Daon share to less than $1.
By August, 1982, Daon announced that it was trying to restructure its bank obligations--estimated at $1 billion--with its five largest lenders. Among these were Canada’s largest banks, including Toronto Dominion Bank, the Royal Bank of Canada and the Bank of Montreal.
Said MacFarlane:
“In the restructuring plan, all of the lenders came in on a formula with a three-year moratorium on interest to be paid in common shares. Now the banks are tendering their interest or shares to Bell. So that will relieve the situation.”
Whether it is because of the restructuring or due to an improved economy, Daon appears to be making a quiet comeback in California, where it still owns substantial acreage in Orange, Riverside and San Diego counties. (“Some of its 13,000 acres was sold but not a huge amount,” MacFarlane said.)
The Catalina project is an example.
In early 1982, Daon and Tarnutzer-Hamilton of Costa Mesa began construction on the 100-acre, second-home, condominium development known as Hamilton Cove with much fanfare, taking prospective customers to the site by helicopter, showing them around in limousines and treating them to fish dinners at ocean-side restaurants.
Partnership Dissolved
Then came the recession. John Feucht, Daon’s vice president-residential, in Southern California, said: “We dissolved the partnership (with Tarnutzer-Hamilton) and suspended construction in early August, 1982. Then we resumed in earnest in June, 1984.”
Between 1982 and 1984, Daon renegotiated its development agreement with the City of Avalon “so we could get an extension and not be in default,” he explained, and his firm also built 62 units of low- and moderate-income housing in Avalon as part of the agreement.
Last June, however, Daon decided to finance the first phase of Hamilton Cove on its own. “Lenders were few and far between for secondary homes on Catalina Island on leasehold land,” Feucht said. “So we decided to go ahead and do the first 22 units ourselves.”
Now a model is virtually completed, Daon has its governmental approvals to sell, and the firm has just started marketing the units, which range from $248,000 to $370,000, with an average price of $310,000, for the condos remaining. (Previously, the average price was $666,000.) Three have already been sold (two at $475,000 each) through Daon, Rogers Realty in Corona del Mar (which is handling sales on an exclusive listing) and such cooperating brokers as Davis Baker Co. on Catalina.
“We’re not quite the dog-and-pony show that we were,” Feucht admitted. “We have a low-key sales program. We didn’t want to get started too quickly on the marketing because of the project’s tainted, on-again off-again past.” Due to geological, financial and political problems, two other developers--the Balboa Bay Club in Newport Beach and Lifetime Communities of Catalina Inc.--tried unsuccessfully to develop the site before Daon.
Daon expects the first of the projected 330 units in the $115-million project to be completed in March. “We’ll also have a clubhouse, tennis courts, swimming pool, boat moorings and the beach area completed by then,” Feucht said.
Then, with other financing, Daon plans to build 29 more units. “A lender is willing to commit to $6 million as soon as we have 15 signed sales contracts,” he said. Great Western Savings & Loan and Central Federal, a bank in San Diego, are willing to provide buyer financing, he added.
Land leases, on the first 22 units, vary from $38 to $60 a month through the year 2053, and the monthly homeowner fee is $364.
Further phases will be developed, “depending on how well the sales go,” he said. “It will be like painting by numbers.” Only 33 of the 100 acres are considered “buildable.”
In the meantime, Daon only has 112 units left to sell of its 872-unit condominiun conversion in San Bruno, and the firm is in the final phase of construction on a 173-unit single-family detached project in Vista. “We’ve already built and sold all but 26 units,” he said.
Other projects include construction of 88 duplexes and 136 apartments in Vista and 440 apartments in Corona.
With Bell Canada Enterprises’ acquisition of an estimated 60% to 70% of the shares, these developments will be even more stable, according to MacFarlane. “It means that Daon’s projects will have staying power,” he said.
In making its offer, Bell stated that it does not plan any major changes in Daon’s “affairs, organization, management or personnel.” Daon’s largest shareholders are its chairman, Graham R. Dawson (whose last name was used to create the name Daon), and president, J. W. (Jack) Poole, who co-founded the firm with Dawson in 1964.
