Koll Building Huge Resort at Baja’s Tip : * Construction: The Newport Beach company reacts to the U.S. business slump by undertaking a grand-scale project in Mexico. And there may be more to come.

What’s a developer to do when there’s nothing to develop?

The office market in most places around the nation, and certainly in Southern California, is overbuilt. There’s not much call for industrial space, either. At the Koll Co., the big Newport Beach commercial developer, the development business has slumped dramatically.

So Koll is in Mexico doing something entirely new for the firm: Building a resort.

This isn’t just a little hotel on a beach somewhere. It’s a resort on a grand scale--a couple of Jack Nicklaus-designed golf courses, 4 miles of beachfront, three or four new hotels (one of them possibly as big as 1,200 rooms) and 4,000 luxury homes.

While the rewards are much greater than with a small resort, so are the risks.

Cabo San Lucas, at the tip of the Baja Peninsula, has been pretty much a sleepy fishing resort until a few years ago. There still may not be enough to do in Cabo now to lure a lot of convention business, which isn’t essential to most resorts but certainly helps.

Building this mega-resort--actually two resorts a few miles from each other--will probably cost $1 billion, Koll estimates. And all this new development may change the largely unspoiled character of the peninsula’s tip--the thing that draws most of the tourists who now visit. On top of everything else, water is scarce.

“It could be tough,” said Gary T. Wescombe, an expert on resorts and a partner at accounting firm Kenneth Leventhal & Co.’s Newport Beach office. “It might be difficult to market it to the convention business, and that’s real important to any hotel.”

Still, these risks seem worthwhile to Donald M. Koll, the private company’s wealthy chairman.

“You go where the business is,” says Koll, who gave a rare interview recently as his company began heavily promoting the resort. “There are obviously too many buildings here” in Orange County.

As for drawing visitors to the tip of Baja California, Koll says, the 900-acre Palmilla resort and the 1,800-acre Cabo del Sol will become the “third city” between the towns of San Jose del Cabo and Cabo San Lucas, large enough to provide plenty of activities for guests.

And Cabo San Lucas is just two hours by plane from Southern California’s enormous population--and just two flight hours from Dallas, as well.

The resort got a boost recently when the Mexican government agreed to lend Koll $55 million to build roads and otherwise prepare the land for the development.

Another reason for the many press releases coming out of the new Koll International subsidiary: The company is also financing construction of the resort by selling lots for homes. A few lots have already been sold for up to $600,000 for a waterfront site, which may seem pricey but would not come near buying a similar lot in most of Southern California.

The Cabo San Lucas area first began attracting U.S. tourists in the 1940s, when word of the fabulous fishing there lured such movie stars as Bing Crosby and John Wayne. But the area was nearly inaccessible except by boat or plane; it was not until 1973 that Highway 1 from Tijuana at the U.S. border reached the end of the peninsula.

“It was--and really still is--the sort of place where you went fishing, came back to the hotel, had a drink and went to bed,” says one real estate expert who has vacationed there. “It was real quiet.”

Koll, who made a fortune and created a huge development company in the building boom of the 1970s and 1980s, began slipping away to Cabo San Lucas 30 years ago, like many other Southern Californians, for a respite from the hurried Southland pace. (Despite the first-class golf courses he is building, though, Koll is not a golfer.)

In 1984 he bought the Palmilla Hotel, one of the resort’s older and better-known hostelries. It came with 900 acres.

“I sort of played developer-on-vacation, wondering what could be done with the land,” Koll says.

The other large chunk of land was bought a few years later. Koll declines to disclose prices for either parcel.

But it was not until Mexico--desperate for foreign investment--began liberalizing its investment policies, Koll says, that he seriously considered building a resort at Cabo San Lucas.

At the same time, the stateside real estate market went sour. Now that little is being built in the United States, the Koll Co. is urgently trying to increase its non-development businesses--managing property and advising investors.

Then there are the new markets such as Mexico, where even as work begins on the two resorts, Koll says he is looking beyond Cabo San Lucas for other resorts to build.

The flurry of development at Cabo San Lucas--a Mexican developer is building another mega-resort beside Koll’s--promises to change forever these sleepy beach towns on the tip of land between the Pacific Ocean and the Sea of Cortez.

And not to everyone’s delight, either. “He’s basically bringing Newport Beach to Baja,” snorts the real estate expert who has vacationed at Cabo San Lucas.

The Mexican government, however, likes the idea: It says it loaned Koll the money because the resorts will bring jobs and foreign currency to the impoverished peninsula.

While Koll admits that Baja is in for some big changes because of his resorts, he says the resorts will at least be tasteful: environmentally sensitive, with lots of open space, and carefully controlled, right down to the colors of the houses.

“The world is moving right along, and I can’t control where people want to go,” Koll says. “But what I can control is the atmosphere and ambience of this place. And what’s done will be properly and tastefully done.

“It’s not going to be all little bars with sand on the floor.”