Canadian Firm Bounces Back : Catalina Condos Get 3rd Try
French film star Louis Jourdan will appear on American television starting this month to promote a Santa Catalina Island condominium project that has had more ups and downs than the once-besieged developer who is still behind it.
The developer is Jack Poole, but the firm he oversaw from his Vancouver, Canada, offices when it started construction on the Catalina project, known as Hamilton Cove, is more familiar to Southern Californians.
The firm was Daon, and it is one of the many Canadian companies that cashed in on the land-acquisition trend that swept through the Sun Belt before the recession, which brought a number of developers, including Daon, to the brink of bankruptcy.
Daon’s rise and fall was more dramatic than most, though, largely because of its interest in converting apartments to condominiums.
‘Took Substantial Losses’
As Poole explained by telephone from his office in British Columbia, “We paid condo prices for a great number of apartment units, then got caught in a tough interest-rate cycle. We took substantial losses in ’82.” Before that, the firm’s growth was remarkable.
Daon entered the American market in 1976, and within four years quintupled its profits to $51 million and nearly quadrupled its total assets to $1.67 billion.
At its peak in 1981, its stock was selling on the Toronto Stock Exchange for $13.50 (Canadian) a share. By August, 1982, the value of a Daon share sunk to less than $1, and Poole announced then that be was trying to restructure the company’s bank obligations, estimated at $1 billion.
The Catalina project, which Daon began earlier that year after at least two other developers failed in their attempts, came to an abrupt halt. Two years later, construction started again. Twenty-two units were completed last July, and a clubhouse was completed last fall. Then construction stopped again.
Grand Opening Planned
Now it’s under way once more with a grand opening planned next month of 56 condos of a projected total of at least 330, and models decorated by Carole Eichen.
“Hamilton Cove was launched during the high interest-rate cycle,” Poole said. “Then the company went through a cash squeeze, and the project was put on the shelf. Then we had two years of uncertainty about tax reform. Remember? There was some question about whether or not mortgage interest on second homes would be deductible.”
That was critical to the $1-billion Hamilton Cove project, which is basically a second-home community despite its hefty prices. Nineteen of the first 22 units were sold at an average price of $360,000, and the average asking price of the next 56 units, which are smaller, is $250,000. Hamilton Cove isn’t expected to be completed until 1992, but Poole isn’t concerned that the project will be stymied again. The worries that plagued him about tax reform and his company’s financial difficulties are in the past, he said, as is the name “Daon” itself.
It was changed about a year ago to BCED (Bell Canada Enterprises Development) Corp., to reflect its controlling partner, Bell Canada Enterprises Inc., a holding company that had $24 billion in assets last year.
Bell Canada Enterprises Inc., which also counts the Bell Canada telephone company and Northern Telecom Ltd. among its entities, acquired more than half of Daon’s shares in 1985, after Daon “came through financial restructuring and was again profitable,” Poole said.
Partners’ Obligations
“So, as Daon, we had 21 good years and two very bad ones, but we even picked up our joint-venture partners’ obligations.”
During Daon’s struggle to survive, there was what Poole describes as “some serious downsizing” of its American operations. Many employees left. “But a lot of the veterans are still in the trenches,” he said.
Poole became chairman of the board of BCED, a public company with shares traded in the $4 (Canadian) range on the Toronto and Vancouver stock exchanges. Bell Canada Enterprises Inc. owns 66%.
Why did he and Daon co-founder Graham R. Dawson, who has retired, decide to sell Daon’s controlling interest once the firm became profitable again? “Because Daon needed some working capital, and I wanted the company to get back in the mainstream, to be able to conclude a $1-billion acquisition as we did about a year ago.”
That acquisition was for most of the U. S. portfolio of Oxford Properties, another big Canadian development firm active in the United States.
The portfolio included 14 U. S. commercial properties with 11.5 million square feet of existing and potential development space, mainly in Minneapolis and Chicago. This doubled BCED’s assets and raised their total value to nearly $2.7 billion.
Going in ‘New Direction’
As result of the purchase, BCED is going in what Poole terms “a new direction” from being a land company to a company developing and owning commercial income property.
Converting apartments to condominiums is not, he said, “a business we intend to go back into.”
However, BCED is completing some residential projects, like Hamilton Cove, that were started by Daon on some of its vast land holdings and even formed Reilly Homes, a home-building company--75% owned by BCED--that expects to build 500 units this year and 1,000 homes in 1988.
At one time, Daon held 13,000 acres of land in Southern California. BCED still owns 6,000 to 7,000 acres but is developing some while completing the infrastructure on other parts, such as the 800-acre Corona Hills in Corona, that are being sold to various home builders.
By helicopter, Kenneth Klopp, vice president of land for BCED, pointed out some of the sites, which stretch from San Diego to Indian Wells, where BCED hopes to have a 564-room hotel under way within 60 days with Stouffers Hotel Corp. “We’re a minority partner. We own the land,” Poole explained.
Sold Corona Land
In Corona, Klopp said, “we just sold 3,000 to 4,000 acres to an investment group, but we remain as a silent and limited partner after the sale.”
A 14-acre Price Club is being built on another 61 acres owned by BCED in Corona, and BCED is involved in a joint-venture commercial project for the rest of that site.
BCED also developed the infrastructure for an 80-acre Corona residential project called “Brookwood,” and several builders, including Reilly Homes, are busy constructing homes there now.
In the same vicinity, BCED owns the Temescal Water Co., 82 miles of pipeline and the dam and water rights at Canyon Lake, as well as the Corona Foothill Co., which owns 700 to 800 acres in a few parcels.
“We also own several sand and gravel companies and other bits and pieces of land that we plan to sell during 1987,” Klopp added.
Property in Carlsbad
BCED owns properties in Rancho Cucamonga, where it is developing 33 buildings as a business park, and through a separate entity known as La Costa Ranch Co., BCED has an interest in 2,800 acres at Carlsbad, adjacent to the La Costa resort, where four communities are planned.
In Vista, BCED just finished master planning a project known as Shadow Ridge, a 988-acre community of about 4,000 residential units. BCED’s helicopter pilot, Nevin Jensen, said most of the infrastructure there is complete, with land sold to major builders.
BCED also owns 1,200 acres approved for 3,000 residential units at Scripps Ranch North, 16 miles north of San Diego.
There is a division office for Scripps Ranch North and the La Costa project in Carlsbad, but BCED’s U. S. headquarters is in Dupont Center, a two-building joint venture that BCED completed in Irvine in January.
BCED’s main headquarters is in Vancouver, and its parent’s headquarters is in Montreal.
Toronto and Idaho
BCED is developing a city block in Toronto, Klopp said, and expects to start developing a 100-acre parcel in Sun Valley, Ida., next year.
BCED is developing major retail and office projects in Chicago and Minneapolis; shopping center projects in British Columbia and Washington state, and a new headquarters for Northern Telecom Canada in Mississauga, Ontario.
So far, BCED is developing nothing in downtown Los Angeles, although Oxford Properties developed the first tower at Citicorp Plaza. The tower was taken out of the portfolio sold to BCED.
‘Only Been Spectators’
Poole says, however, that downtown Los Angeles is “an excellent market” and lamented, “Unfortunately, we’ve only been spectators there. We haven’t had the opportunity to be a player, but we will be one day.”
Although BCED gained a high profile in other states with its Oxford acquisitions, Poole looks at California as one of his favorite places to invest and plans to acquire and develop more property throughout the state, he said.
BCED already is showing signs of this in Orange County, where it has an option to buy a 62-acre site, which is now a bean field, at the Newport and the San Diego freeway interchange in Santa Ana. After escrow closes at the end of the year, BCED plans to develop a $700-million high-rise office and hotel project there.
