Brave New World of S&L; Deals : Regulations: Strict rules in the bailout era have changed financing, so much in fact, that the word <i> restructuring</i> is becoming part of the transaction lingo.

The objection of federal savings and loan regulators Monday to Orange County developer Barry G. Hon’s $967-million purchase of Landmark Land Co.’s major resort properties shows their growing clout under the new thrift bailout law.

How and when S&L; regulators now exercise their new-found muscle have left thrift operators and real estate developers guessing how to comply and cope with strict new industry regulations enacted last August to rescue the S&L; deposit insurance system.

While Hon thought he had met the federal thrift rules in the deal involving prime golf courses, tennis, resort and residential land owned by Landmark’s main subsidiary, Oak Tree Savings Bank in New Orleans, regulators decided that the thrift was loaning him too much.

“It shows again that even though a deal (appears to) meet all the requirements of the new law, the regulators could still force you to restructure it,” said Lawrence Grill, chairman and president of Universal Savings Bank in Orange. “It’s the price of being in a regulated industry.”

Now Hon and Carmel-based Landmark said they will try to find another way to arrange the financing and complete the deal, which involves such well-known properties as the Mission Hills Country Club, PGA West and La Quinta Golf & Tennis Club.

The regulators’ questioning of the transaction does not surprise other thrift executives who also are finding it tough to operate under the thrift bailout law. The myriad of rules imposed by the law and enforced through tough regulations has reshaped thrifts more in the image of banks and has greatly restricted their operations.

Institutions like Columbia Savings & Loan in Beverly Hills and FarWest Savings in Newport Beach, for instance, have lost millions of dollars mainly because of the law’s requirement to sell high-risk, high-yield “junk bonds” within five years. The requirement has helped fuel a drop in the value of their securities holdings.

And thrifts like Oak Tree and Downey Savings & Loan in Newport Beach have been ordered to get out of the real estate development business within five years. Downey is dismantling a highly profitable real estate operation that had made it the premier developer and operator of neighborhood shopping centers in California and Arizona.

Oak Tree thought it had taken a giant step out of the real estate business by selling properties in three states to Hon. The thrift believed that the deal would not be held up by a restrictive new rule that limited the amount of money a thrift could loan to one borrower to 15% of the institution’s capital. Previously, thrifts were able to lend amounts equal to 100% of capital.

Regulators appeared to give a boost to the Hon deal and similar deals a month ago when they decided that the loan-to-one-borrower rule would not be invoked when thrifts sell property they already own and “take back paper,” or essentially finance it themselves.

The Office of Thrift Supervision, which regulates S&Ls;, decided not to consider such financing as loans, said Paul Lockwood, an OTS spokesman. The new interpretation is designed to help thrifts sell the property they own and comply with the law sooner, he said. With regulators themselves holding billions of dollars in real estate from failed thrifts, many healthy S&Ls; have found it difficult to dispose of their holdings profitably.

Still regulators decided that the credit Oak Tree would be extending to Hon was simply too high. At more than $750 million, the loan would represent more than 25% of the institution’s assets.

The regulatory action is not the kiss of death, real estate analysts said. But the objection is forcing Hon and Landmark, a leading developer of resort and golf course properties, to scramble for a way to save the transaction.

“People would make a big mistake if they think it’s dead,” said Kenneth D. Campbell, an analyst with the Montvale, N.J., real estate investment advising firm Audit Investments Inc.

Hon’s lawyer, Bruce A. Tester of Costa Mesa, said that the deal is “definitely not dead” and that Hon’s five-member acquisition team is “considering every conceivable way” to complete the purchase.

Executives of Carmel-based Landmark were more cautious. Douglas Barton, an executive vice president, said it would be “hard to raise” the money needed to complete the first phase of the deal by the end of June. But he said the company will help Hon restructure the deal to try to satisfy regulatory concerns.

Regulators suggested that Oak Tree take more time to sell its properties and that it find more borrowers, Barton said. “But they had no objections to Barry Hon or to the values of the properties,” he said.

Barton said Oak Tree executives will meet today with federal regulators in Dallas to try to find out specifically what could be done to revive the sale.

Jack Rodman, an investment adviser with Kenneth Leventhal & Co. in Los Angeles, said that Hon is still the “logical player” in the deal and that he will likely have to take on partners to finance the purchase. He said a number of Japanese companies that have purchased Landmark properties could join with Hon in acquiring certain California land.

“Hon’s got to act if he wants the deal,” said Rodman, whose firm was retained by Landmark as an investment adviser.

Tester said Hon has been deluged with calls from people who want to invest with him or form joint ventures on some of the properties. “The big job,” he said, “is to sort out which calls are for real and which aren’t.” But he said Hon’s plans depend on what regulators tell Oak Tree executives.

Oak Tree also could syndicate the loan by bringing in other lenders as joint participants, analyst Campbell said. Since Oak Tree is required to sell the real estate, it may have to offer incentives, such as giving up a fraction of the interest rate, to participants, he said.

Campbell pointed out that Hon appears to be a bona fide buyer willing to put $200 million of his own money into the deal, half this year and half next year.

“If Hon comes to the table with $100 million in cash in June, then it’s a reasonable loan and should be approved,” he said.