Sante Fe’s Real Estate Proves Attractive Asset
In the drive to promote the West, one 19th-Century advertisement by the Southern Pacific railroad proclaimed that California had “a climate for health and wealth without cyclones or buzzards.”
Now, that cyclone- and buzzard-free land held by Santa Fe Southern Pacific Corp., the modern-day owner of the Southern Pacific, has become one of the Chicago company’s most attractive assets. Attractive enough, it appears, to draw San Diego-based Henley Group to the negotiating table with an eye toward buying all of Santa Fe Southern Pacific.
When the 1983 merger of the Santa Fe and Southern Pacific railroads created Santa Fe Southern Pacific, it also created what is probably the nation’s largest publicly held real estate development company with 3 million acres of land, much of it in California. The company’s high-profile holdings include the 208-acre Mission Bay project in San Francisco, a 20-acre development surrounding the old Santa Fe station in downtown San Diego and the Pacific Design Center in West Hollywood.
Owns Land in 15 States
While Santa Fe Southern Pacific carried its real estate on its books at $640.1 million at the end of 1986, stock market analysts have valued it at anywhere between $2 billion and $9 billion. Analysts have placed the combined value of the two railroads, one of which must be sold under order of the Interstate Commerce Commission, at around $3 billion.
But analyst Joel Price of Donaldson Lufkin Jenrette said “there’s nobody in America that really knows” what Santa Fe Southern Pacific’s real estate is worth on the market, adding that the value has decreased since the stock market crash. “Is there an office building in San Francisco worth as much as it was a month ago?” he said.
In all, the company owns more than 3 million acres in 15 states. A total of 1.3 million acres are in California, where Santa Fe Southern Pacific is the largest landholder other than the government.
The most valuable part of the company’s holdings is its 28,500 acres of developed commercial and industrial properties in California and nine other states.
Tax Fight in California
Santa Fe Southern Pacific had intended to spin off about $300 million of its developed real estate into a real estate investment trust as part of a restructuring, but the status of that plan will depend on who ends up owning the company, a company spokesman said Monday.
The bulk of the company’s land--2.8 million acres--is desert and grazing land. More than 500,000 acres of timberland is being sold and another 158,000 acres of farmland in the San Joaquin Valley is up for sale.
One issue any future owner of Santa Fe Southern Pacific must deal with is the tax fight the company is waging in California, where several counties contend that the 1983 merger triggered a reassessment of property for tax purposes under Proposition 13.
The company is arguing that the merger did not constitute a change in ownership under the terms of the law and is expecting the first case to come to trial in Contra Costa County in the next several months. “In the meantime, we’re paying all of our taxes, some of it under protest because some counties have reassessed,” the company spokesman said.
The value of the company’s real estate is difficult to determine because so much of it is still undeveloped, the spokesman said.
