Lyon Finds Fresh Challenge in Real Estate : Builder’s Move Into Pacific Lighting Boosts Formidable Holdings

It comes as no surprise to those who know him that 64-year-old Newport Beach builder William Lyon has struck a deal to pay $325 million for the far-ranging real estate enterprises of Pacific Lighting Corp.

At a time when many prepare for retirement, Lyon--apparently restless after bowing out of the airline that had taken much of his time and effort for the past few years--has been on the prowl for something to add to his already-formidable holdings.

Lyon, whose real estate ventures have reportedly been extremely profitable and who managed to turn a profit of $15 million last year from what had been a money-losing regional airline, had both time and cash available for a new business venture. And, friends and competitors said, he is not a man who likes to sit on his laurels.

Dick Randall, president of the Lyon Co., said what propels Lyon into new ventures is “not an insatiable appetite for money but the challenge of doing it.”

More and more, Lyon seems to be finding that challenge in real estate.

Peter Ochs, formerly president of the Lyon Co. and now chairman of the Fieldstone building firm, said he believes it was “a timely move” for Lyon to sell AirCal. “The business he knows best, and is most comfortable and experienced with, is home building in California and the Southwest.”

Real estate industry experts said while Lyon will be acquiring a valuable management team and a well-known brand name in Pacific Lighting’s subsidiary, Presley Cos., they believe he was mainly interested in the development potential involved in the thousands of acres of land the company owns.

According to Kenneth Leventhal & Co., an accounting firm that was the auditor for Pacific Lighting’s real estate group, Presley has more than 50 development projects under way in California, New Mexico and Arizona.

Additionally, other Pacific Lighting real estate units Lyon bought through Senior Corp., a Miami-based real estate firm of which he is half-owner, have residential, commercial and industrial land and buildings in California and throughout Hawaii.

One reason Lyon was looking when Los Angeles-based Pacific Lighting announced that it wanted to sell its real estate operations was that he had time on his hands after American Airlines bought AirCal.

Active AirCal Chairman

Lyon had been AirCal’s hands-on chairman since 1982, successfully guiding the airline through the financial turbulence caused by half a decade of fierce fare wars, the strike by air traffic controllers and soaring fuel prices.

So when he and fellow developer George Argyros sold the regional carrier, which they had bought for just $61.5 million in 1981, it fetched a price of $225 million and earned each of the partners a $15 million profit.

That profit is just a small part of the fortune Lyon had available to pursue the Pacific Lighting real estate companies. In fact, Lyon insists that he is not using his AirCal profits to pay for the deal.

Sources close to Lyon said business has been booming at Senior Corp., a commercial real estate development and management firm that Lyon and longtime friend James D. Harper Jr. bought in 1984--booming so much, the sources said, that within a year of the acquisition, the business buddies had recouped the $141 million they paid for the company.

Nor is business shabby on Lyon’s home turf.

The Newport Beach-based William Lyon Co., of which Lyon owns more than 90%, reported sales of $692 million last year--making it the nation’s eighth-largest home builder, according to a survey by Professional Builder Magazine.

Sales were boosted in part by the Lyon Co.’s acquisition last year of Golden West Homes, a Santa Ana-based manufacturer of mobile homes.

Like most home builders, Lyon for the last several years has been riding high, as falling mortgage rates boosted an already-strong consumer demand for housing--especially for the entry-level and mid-priced homes that have been the Lyon Co.’s trademark.

If the transaction with Pacific Lighting closes as expected, within a month Lyon will personally take ownership of the Presley Cos., an Irvine-based home builder that sold about 2,300 homes last year with a sales value of about $250 million.

Four Other Companies

In addition, Senior Corp. will buy four other Pacific Lighting companies: Blackfield Hawaii Corp., a Honolulu-based developer of single-family homes, condominiums, office buildings and shopping centers; and three Santa Ana-based firms--Dunn Properties, a commercial-industrial developer; Fredricks Development Corp., which builds and sells apartment complexes, and Ankirk Co., a property management firm.

Pacific Lighting said in 1986 its combined real estate companies earned $24 million.

Lyon’s acquisition of the Presley Cos. will make him undisputedly the region’s leading residential builder.

But making money has never been the sole motivation for “the General,” as almost everyone who has ever dealt with Lyon calls him.

An active pilot, retired Air Force Reserve brigadier general, big-game hunter, collector of classic autos, Republican Party contributor and fund-raiser and philanthropist, Lyon “enjoys what he is doing and thrives on it,” said his wife, Willa Dean.

Lyon’s friends spoke of his attachment to his family, courtliness, dry wit and affection for his workers. They said he will scout out the lowliest laborer on a construction job site to inquire about the welfare of his wife and children.

But Lyon can seem curt and testy to outsiders, especially news people--a trait that his wife said reflects his desire for privacy and his irritation with inaccuracies he has spotted in stories published about him and his businesses.

Lyon, in fact, refused to be interviewed for this profile.

A longtime business associate who asked not to be quoted for fear of incurring Lyon’s anger said Lyon is “really a generous guy and he wants to do good in the world, but he is very sensitive.”

Lyon has nurtured a love affair with flying since he was a teen-ager growing up in West Los Angeles. He got his pilot’s license at 16 and flew for the military in World War II and during the Korean War, working as a commercial pilot between service stints.

The sale of AirCal did not end Lyon’s fascination with aviation. He keeps a Falcon 50 jet at John Wayne Airport for business and fun, recently piloting it to Africa on a hunting safari, his wife said.

Besides flying, Lyon takes pleasure in classic cars. Since his wife surprised him with a Duesenberg on his 60th birthday, Lyon has acquired many eye-catching automobiles, including 82 from the famous Harrah’s automobile collection that he bought last year for $28.8 million, doubling the value of his own collection.

Building New Home

He is building a new home for himself, his wife and their 13-year-old son in the private equestrian community of Coto de Caza in southeast Orange County. A mammoth garage for the car collection is one of the property’s features, Randall said.

Lyon is also a philanthropist, giving time and financial support to myriad organizations. As chairman of the Orangewood Children’s Foundation, he is described as the driving force behind a campaign that raised $8 million to build a new emergency shelter operated by Orange County for abused and neglected children.

And close associates frequently refer to Lyon’s patriotism, demonstrated by his decision to take a four-year sabbatical from his building business to serve in Washington as chief of the Air Force Reserve in 1975-79.

In business, to which his wife says he devotes 10-12 hours a day, Lyon is described as an entrepreneur who can smell a good real estate deal and as a no-nonsense chief executive who keeps staff meetings brief and to the point and surrounds himself with talented managers to whom he can comfortably delegate responsibility.

Randall, the Lyon Co. president, said Lyon’s main strength is knowing how to manage people and inspire loyalty.

Randall said it is typical that Lyon has decided to keep all of the Presley Cos. managers--a team that is highly rated in the industry--and that he plans to give them an equity interest in the company.

Similarly, Randall said, at the Lyon Co. “we have five vice presidents, and all of them own a small piece of the company.”

A piece of the action, Randall said, gives executives an incentive to work harder.

Another of Lyon’s management rules, Randall said, is to keep his staff lean.

The Lyon Co. has 210 employees, including 11 managers. “We subcontract everything we can,” he said, including architectural and legal services and full construction crews: Just two of Lyon employees are assigned to a construction job--a superintendent and his assistant.

Randall, whose office is in San Jose because that is where he prefers to live, said Lyon gives his managers “tremendous responsibilities and the authority that goes with it.”

Lyon, he said, sees his role as that of trouble-shooter: “Where he is needed is where he is at.”

Making Big Splash

Now, after spending several years guiding AirCal, Lyon is back full time in the world of real estate, and, with the Pacific Lighting acquisitions, is already making a big splash.

Ken Agid, a Newport Beach-based real estate marketing analyst, said that, because of a rising political tide to curb development throughout Southern California, land already zoned for development has become a dear commodity.

“Builders are paying a premium for any land they can get right now,” Agid said.

“What Bill Lyon did is instead of buying land retail, he bought it on a wholesale basis” by acquiring the Pacific Lighting subsidiaries.

Always tuned to changes in the marketplace, Lyon was one of the first home builders in the early 1980s to spend his company’s own money to provide below-market mortgage rates when soaring market rates were putting houses beyond the reach of prospective buyers.

While other builders got out of the business, Lyon hung in. “I felt to hold your organization together you kind of swallow the bad years with the good years,” he said in an earlier interview.

Michael Meyer, managing partner of the Newport Beach office of Kenneth Leventhal, which gives Lyon financial advice, said Lyon is “uncanny as far as his business acumen.”

As an example, he said Lyon “started going into apartments a few years ago when almost everyone was saying the price of land was so high that they didn’t really pencil out.”

But Meyer said government bond financing programs for apartment construction combined with a strong rental market to give Lyon “an excellent return” from the apartments he has built.

Despite Lyon’s almost charmed track record, some in the housing industry suggested that he was ahead of the market and perhaps foolish to buy Golden West Homes.

Even before Lyon increased his ownership in Golden West from 26.9% to 100% by paying $12.4 million for the remaining stock, the manufactured housing market was falling apart on the West Coast.

Harry Karsten Jr., president and chief executive officer at Golden West, said mild weather conditions and other building efficiencies in California make factory-built modular housing uncompetitive here. And he said there has been a shortage of rental parks for mobile homes.

Karsten said Lyon was “extremely helpful” in reorganizing Golden West and guiding it through “difficult times.” He said the company, now a Lyon Co. subsidiary, is operating at a profit, although he declined to say how long that has been the case. He said Lyon is starting to develop mobile home communities--the first is in Reno--where Golden West can place its product.

While there are some off-the-record critics of Lyon’s manufactured housing venture, others said it is too early to cast stones.

Sanford Goodkin, a real estate marketing expert at the accounting firm of Peat Marwick/Goodkin in San Diego, said the move shows that Lyon is “a visionary willing to take risks. . . . He is self-confident enough to think he will succeed at anything he would go into.”

Like Myer, Agid respects Lyon’s business judgment. “Knowing that William Lyon is doing it, and how hard he looks at a deal,” Agid believes Lyon’s $325 million acquisition from Pacific Lighting will be another success.

Lyon, Agid said, “doesn’t buy things on speculation.”