Peters Sale Could Cost Taxpayers $100 Million : Real estate: Buyer would get O.C. home building company’s prime land at a discount of 40% or more.
The sale of home builder J.M. Peters Co., being negotiated by the federal government, could cost taxpayers nearly $100 million because it would give the buyer 2,000 prime Southern California residential lots at discounts of 40% or more.
Capital Pacific Homes Inc., the prospective buyer, is already trying to sell some of the property at nearly twice the average price of $53,200 a lot that it would pay if the deal goes through, The Times has learned.
Several industry insiders have said that J.M. Peters lots, located in Orange, Los Angeles and San Diego counties, are worth closer to an average of $90,000 each, even in the depressed real estate market.
The sale, outlined in a letter of intent between the federal Resolution Trust Corp. and Capital Pacific, calls for the year-old Newport Beach builder to acquire 85.8% of publicly traded J.M. Peters stock and $144.8 million of its debt for $47.2 million in cash.
Capital Pacific’s president, Dale Dowers, is a former employee of J.M. Peters Co., which also is based in Newport Beach.
The RTC is involved in the transaction as receiver for failed San Jacinto Savings in Houston, which owns the controlling shares of J.M. Peters and is owed $126.5 million in principal and $18.3 million in interest by the once-thriving company.
Founder James M. Peters sold the luxury-home building company to San Jacinto in 1985 for about $20 million and stayed on as chairman. Over the years, San Jacinto functioned as J.M. Peters Co.’s major lender. It financed the company’s land acquisition and construction activities until 1990, when the thrift’s other real estate investments soured and it was seized by federal regulators, who cut off J.M. Peters’ credit.
Officials at Capital Pacific, the RTC and James M. Peters himself would not comment, but several sources with knowledge of the transaction said that, by allowing Capital to purchase the J.M. Peters debt from San Jacinto at a massive discount, the deal effectively forgives $97.6 million in loans that J.M. Peters had used to acquire property. Proceeds of those loans, had they been paid in full, would have helped erase the cost to taxpayers of liquidating San Jacinto Savings.
Late last week, J.M. Peters filed a letter of intent with the Securities and Exchange Commission to satisfy disclosure rules. The letter reveals that the RTC has agreed to forgive any tax liability that J.M. Peters might incur because of the value it received from federal funds used to assist its parent, San Jacinto.
Just two weeks ago--days before signing the letter of intent on June 12--the RTC dropped its claim for $60.6 million in federal income taxes it said J.M. Peters Co. owed San Jacinto as its share of consolidated tax payments from previous years.
In its audited financial report for its fiscal year ended Feb. 28, J.M. Peters listed assets of $250.8 million, with land and improvements accounting for $224.6 million of the total.
The company’s liabilities for land and improvements included the $144.8 million debt to San Jacinto plus $46.9 million owed to other financial institutions and an additional $12.3 million owed the seller for a number of lots it purchased in the San Diego County resort community of La Quinta.
When the total liabilities of $204 million are reduced by the $97.6 million in debt forgiven under the terms of the proposed purchase agreement, the net result is that Capital Pacific would acquire the 2,000 lots for about $106.4 million, or $53,200 apiece.
“If that’s true, it might represent one of the worst deals the RTC has ever made,” said Irvine real estate consultant Ken Agid. “I would think those lots still would represent a deal if they sold for closer to $90,000.”
Capital Pacific’s principals apparently think so, too.
Industry sources said they have retained a broker who is circulating proposals to other builders, offering to sell certain blocks of the J.M. Peters lots at prices as high as $100,000 apiece if the deal with the RTC is approved.
The proposed deal--even with Capital Pacific’s attempts to pre-sell some of the assets--has won support from one prominent industry figure.
“This is what happens in these kinds of deals,” said Sanford R. Goodkin, a La Jolla real estate financing consultant.
“It seems to me that this was an enormously shrewd deal by Capital Pacific. People always criticize the RTC and its deals in hindsight, but it always takes someone willing to assume a risk to step up to the table and do one of these major asset sales,” he said.
“The buyers recover some of their risk by selling assets they don’t want to secondary buyers, and then people say the RTC could have got a lot more money by hanging on to the land and selling it more slowly,” Goodkin said, “But they forget that the cost (to the RTC) of hanging on to the properties eats up the profits.”
As for James M. Peters, he said he is not sure what he’ll do after the sale goes through. “I don’t know what my future holds,” he said.
Time staff writer Chris Woodyard contributed to this report.
