Landmark Land Co. said Wednesday it has agreed to sell a 6,700-acre Riverside County parcel to Laguna Hills developer Barry Hon for $275 million and has hired an investment banking firm to peddle the company's remaining big-name golf and resort assets.
The new deal comes just nine days after federal thrift regulators blocked a $967-million sale of Carmel-based Landmark's prime properties to Hon. Regulators had called the original deal unsound because Landmark's subsidiary, Oak Tree Savings Bank in New Orleans, was providing too much financing to Hon.
"I felt that it was in the best interest of everyone to reach this revised agreement quickly," Hon said in a prepared statement. "I believe that this revised agreement gives us the best real estate development that Landmark owns and that we are still well-positioned to purchase other Oak Tree assets."
Under the revised deal, Hon would put $75 million down by the end of July for undeveloped land in a planned golf course community called Oak Valley at the Pomona Freeway and the Redlands Freeway near Beaumont. Oak Tree would provide $200 million in financing. Regulators must approve the arrangement.
Landmark, a leading golf course and resort developer, holds and operates more than $1 billion worth of real estate through Oak Tree. But federal law enacted last August to bail out the ailing thrift deposit insurance system now requires S&Ls; to sell their interests in such investments within five years.
Gerald G. Barton, Landmark's chairman, president and chief executive, said directors had wanted to dispose of the property in a way least disruptive to the more than 3,500 employees who work in the golf, hotel and real estate development and operations divisions. The original deal with Hon would have transferred those divisions intact.
In the face of federal objections, though, directors decided Tuesday to hire Salomon Brothers Inc., a New York investment banking firm, to try to come up with a buyer for the entire company, Barton said. Any buyer interested only in the real estate operations could sell Oak Tree to a third party, he said.
"If we had the financial capacity, we'd pull out the real estate companies ourself" and put them in the holding company, he said. "Since we don't, we have to look elsewhere."
While he acknowledges that few prospective purchasers are large enough to buy Landmark, which has $3 billion in assets, Barton said he believes that Salomon will come up with offers in one to three months. Salomon will also look into other options, including the possibility of bringing new investors into Oak Tree.
As a last resort, he said, Landmark would liquidate Oak Tree's real estate investments over the next few years.
Since the original deal with Hon was announced in mid-April, Landmark's stock has taken a beating on Wall Street. The price has fallen from $17.50 a share on the day the deal was announced to close Wednesday at $10.875 a share, up 50 cents a share from Tuesday's close. Stock analysts and financial advisers had doubted that the first deal with Hon would go through. It was structured to close in two phases over a year with a total of $200 million in cash from Hon and more than $750 million in financing from Oak Tree, an amount that represented more than 25% of Oak Tree's assets and made regulators balk.
In the revised deal, Hon gives up his plans to own resort properties in three states, more than 10,000 acres of developable land and such golfing jewels as PGA West, La Quinta and Mission Hills Country Club, all in the Palm Desert area.
But the new agreement "makes more sense both for Landmark and for Hon," said Kenneth D. Campbell, an analyst with the Montvale, N.J., real estate investment advising firm Audit Investments Inc. "It gives Landmark more flexibility in dealing with others, and Hon can come in and bargain for whatever he wants."
Though Hon could not be reached for comment, his lawyers and advisers agreed.
"We believe Mr. Hon got the pick of the litter and is still well-positioned to purchase other Oak Tree assets," said attorney William Biel of Costa Mesa. And Hon's financial adviser, Vaughn Mahnke, said Hon will "remain a key player in the disposition of other of Oak Tree's assets."
Bruce A. Tester, an Irvine lawyer who is part of Hon's negotiating team, said it was premature to say whether Hon will bring in other investors to purchase other Landmark assets. But he said the team has talked with several Japanese companies that are interested in Landmark's California golfing operations and properties.
The revised deal would be Landmark's biggest sale of a single asset, Barton said. It would also give Hon his biggest project ever. Hon is currently developing the 2,750-acre Foothill Ranch with 3,900 housing units in South Orange County and is proposing an 850-acre development in Rancho Palos Verdes that would include a 450-room Ritz-Carlton resort hotel and two golf courses.
Like many of Hon's previous developments, the Oak Valley project, with five miles of frontage on the Redlands Freeway, is oriented toward golf and recreation. One of four planned golf courses is already built.