THE HILL WILLIAMS SAGA : Real Estate Troubles in Southland Appearing in More Frequent Cycles
Troubled real estate investment companies appear like clockwork in Southern California, says an investor who is the author of “Smart Trust Deed Investment in California.”
“I’ve been watching the real estate business for over 20 years, and it seems like every five years we go through (an investment scam) cycle,” said George Coats, who is based in West Covina. “Except that now, the cycle seems to be every two or three years.”
Some troubled real estate investment concerns are clearly run by fly-by-night operators who hope to take their clients’ money and disappear. But others involve reputable companies with sterling reputations earned by consistently paying high returns.
IDM Corp., a development company based in Long Beach, was one of those proven performers. During two decades in business, the company attracted thousands of new investors because “we’ve never lost anybody a penny,” said IDM founder Michael J. Choppin.
In July, 1992, Choppin stunned his investors--most of them older Southern Californians--by unexpectedly plunging IDM into bankruptcy proceedings. Choppin maintained that IDM, which had arranged about $300 million in investments for 12,000 investors, was a victim of the same economic slowdown that had savaged the state’s banks and thrifts. But many disgruntled investors have alleged in a handful of ongoing civil lawsuits that were filed in 1992 that Choppin failed to disclose just how risky their real estate investments were.
Similar charges surfaced early in 1991 after Pioneer Mortgage in La Mesa filed for bankruptcy protection. That action was stunning because Pioneer’s president, Gary Naiman, had wooed investors by telling them that his family-owned mortgage investment company hadn’t missed a monthly dividend payment in more than 40 years.
Before its failure, Pioneer had arranged $200 million in real estate loans for 2,000 investors. Bankruptcy officials anticipate that Pioneer’s investors will recoup only about 30 cents on each dollar invested.
Naiman, too, laid the blame on a collapsed California economy that dramatically eroded the value of Pioneer-arranged investments. But in ongoing federal and state civil lawsuits, investors allege that Naiman placed them in risky investments without their knowledge and that he used new investors’ funds to cover payments to other investors.
Southern California investors also were shocked in early 1991 when Property Management Co.’s owners placed the real estate investment company under bankruptcy court protection. PMC, based in Sherman Oaks, eventually emerged from bankruptcy proceedings, but an ongoing civil suit brought by the company’s bankruptcy trustee alleges that the company’s management defrauded investors by operating a Ponzi scheme.
Allegations of using new investors’ money to pay earlier obligations also surfaced in mid-1991 when Wellington Group, an investment company based in South Bay, sought court protection. The bankruptcy filing jeopardized an estimated $50 million invested by as many as 1,500 Californians.
In all of those cases, experts say, investors should have understood the volatile nature of the real estate industry.
“You’ve got to blame the investors, too,” author Coats said. “A lot of them are just plain driven by the idea that they can get a higher rate of return. They realize that it means more risk, and nevertheless they go and do it anyway. . . . They bypass good, safe deals.”
A San Diego businessman who lost thousands of dollars when Pioneer failed grimly quipped that the sad chapter proves one thing: “The bulls charge, the bears retreat, and the pigs get gored.”
