TMI Corp. to Expand Statewide Teachers’ Investment Program
Operating with a cash infusion from new owners, and about to be freed from two years of uncertain status as a ward of the federal government, a Newport Beach investment company that already handles a $700-million portfolio for teachers is gearing up to expand its sales force into every school district in the state.
The aggressive growth plan of Teachers Management & Investment Corp.--financed in part by $1.2 million in cash from the investment management company’s new owners--should also help restore an image tarnished by a two-year state investigation into the company’s practices, said Robert W. Fitzpatrick, TMI’s longtime chairman and chief executive officer.
The investigation of allegations that investors were shortchanged in real estate deals is being halted because it failed to turn up wrongdoing, said Dorene B. Wolf, the state Department of Corporations staff attorney, who is closing the case.
TMI’s cash infusion is part of a deal that frees TMI from the unsettling predicament of being 75% owned by the Federal Savings and Loan Insurance Corp., which picked up the stock when Centennial S&L; in Santa Rosa, which owned the shares, was declared insolvent and seized by government regulators in August, 1985.
Because FSLIC’s goal was to sell the stock rather than run the company, Fitzpatrick said, “it was difficult to convey further growth and stability . . . when you didn’t know the disposition of company ownership from day to day.”
The new owners are Fitzpatrick, a separate partnership and an investment syndicate. They jointly formed a holding company, Martin Shuman Co. of Irvine, to acquire control of TMI.
Martin Shuman put up more than $4 million to buy the Centennial-held shares from the FSLIC and pumped $1.2 million cash directly into TMI by buying 60,000 newly issued shares of stock. In all, the holding company owns about 90% of TMI.
The remaining shares are owned by about 135 teachers throughout the state, Fitzpatrick said.
TMI--whose corporate logo is a shiny red apple--has catered to the investment needs of teachers for 20 years, pooling individuals’ funds to buy real estate and other investments.
The company manages a portfolio of about 65 properties, all in California, that have an aggregate value of $700 million.
Capitalizing on its motto--”teachers helping teachers”--TMI employs 300 educators moonlighting as licensed sales agents. The company has 30 full-time sales people in the field and 85 staff employees in Newport Beach, most of them former teachers, Fitzpatrick said.
“About 50,000 educators have invested through TMI over the past 20 years, and we believe that there is much more market penetration available and waiting--and needed--if TMI can expand its cadre of account executives to service all school districts in California,” said Timothy M. Pennington, who heads a syndication group put together by Brentwood Associates to help form the Martin Shuman firm.
Brentwood Partners
Pennington is one of the 10 top executives and partners of Los Angeles-based Brentwood, a group that also includes Ed Zschau, the Republican challenger for Sen. Alan Cranston’s seat last fall.
“In its 20 years, TMI has never had an investor lose money,” said Maurice B. Shuman, a co-founder of Martin Shuman. “It’s in a unique marketplace, and we’d like to look at other states eventually.”
Martin Shuman, he said, has $2.4 million in reserve for other investments or for future TMI operations.
One reason TMI is concentrating on expanding business statewide this year is that a plan to open offices in other states has been delayed because of the time and expense, Fitzpatrick said.
TMI’s only out-of-state office was opened in Bellevue, Wash., in 1985. “We had decided that if we can do this in California, why not do it for teachers in other states,” he said.
“We were seriously considering opening up in New England and Texas and Chicago, maybe even Ohio.”
But slow acceptance of the company’s investment products in Washington--where TMI still has just one office--prompted company officials to delay plans for out-of-state operations for about two years, he said.
Wariness on Investments
Besides the time and expense of training new sales agents, the company is facing the wariness that investors in other states generally have about a California investment company, Fitzpatrick said.
Adding to that wariness was disclosure of the state investigation at about the same time the Washington office was opened.
The probe was reported in a TMI prospectus that said the state Department of Corporations was investigating the company’s real estate fees, travel expenses, ads and property transactions involving a single unidentified piece of land.
Many of the allegations came in a 350-page complaint filed with the department in May, 1985, by a group that included former TMI employees and sales agents.
The complaint alleged that Centennial Savings and associates of Fitzpatrick pocketed millions of dollars in land deals and brokerage commissions that should have gone to TMI investors. The investors, though, did make a profit on the deals.
Dorene B. Wolf, a staff attorney with the state agency, said last week that the investigation did not uncover violations of securities laws and that there was “no reason to go forward” with it. She said she expects to close the file on the case soon.
Fitzpatrick’s Explanation
Fitzpatrick’s attorney has consistently denied the allegations but had not allowed TMI’s top officer to discuss the case publicly until last week.
Fitzpatrick said those who complained were employees--many of them former teachers--who were fired or laid off when they could no longer do their jobs or keep up with the growing sophistication of the company’s services.
Fitzpatrick said that much of the $1.2 million in new operating capital will be spent training new sales people, obtaining licenses and paying other expenses associated with the fast growth the company has planned for California, now that the investigation is ending.
The rest of the new capital will remain as seed money for the eventual move into other states, he said.
In November, TMI lifted its ban on investors outside the school system, but it has no plans to pursue a general clientele. The general public knows little about the company. The only investors to date who are not teachers were brought into the company by teachers, Fitzpatrick said.
“Martin Shuman and Brentwood recognize the niche TMI has developed and want that protected,” he said. “They don’t want to run around getting public investors. All of our advertising, our thrust, is toward teachers.”
The real estate now owned by TMI includes the Parducci Winery lands in Mendocino County, four hotels in Northern California and varied office buildings, shopping centers and raw acreage throughout the state.
Investment Purposes
The Martin Shuman purchase of TMI was primarily for investment purposes, Shuman said, adding that Fitzpatrick--who has been with TMI since 1968--will continue to operate the firm.
Shuman and partner James R. Martin, both certified public accountants, hold a 48% stake in Martin Shuman; the Brentwood Associates syndicate owns a 42% interest. Fitzpatrick traded in his 10% of TMI stock for 10% of the holding company’s stock. Shuman said his company has also bought the shares of a handful of other TMI shareholders.
Shuman and Martin paid 55% of the $5.3-million purchase total; the Brentwood Associates syndicate paid the rest.
Centennial Savings owned 145,342 shares--or 75.5%--of TMI. Acting as the S&L;’s receiver, the FSLIC sold the shares to Martin Shuman on July 8 for $28 a share.
At about the same time, the holding company paid $20 a share for its 60,000 shares of newly issued TMI stock.
Now, with the government out of management and the investigation closing, the company is fully in control of its own destiny and poised for major growth, Fitzpatrick said.
