REAL ESTATE

Creative Financing: As the credit crunch continues choking off traditional sources of construction and land acquisition loans--savings and loans say they have just about been regulated out of existence, and banks seem mortally afraid of anything connected with real estate, lest they wind up like the S&Ls--builders; are cranking up their thinking caps.

Covington Development Group in Fullerton has come up with a cross between a public offering and a private investment pool.

The company announced this week that it has received approval from the state Department of Corporations to raise up to $11.4 million through the public sale of “fractionalized notes” that are secured by a deed of trust on the real estate to be developed.

George Reinhardt, a vice president of operations at Covington, said the notes will be sold through a subsidiary, Covington Funding Inc.

The way it works is that investors will buy shares--officially called fractional interests--in the raw land, and will be repaid as the finished homes are sold. For security, they get a share of interest in the trust deed equal to their share of the investment pool.

For this initial offering, Covington will put the money raised in the sale of its notes into an escrow account to be used to finance development and construction of an 87-home project in Ontario.