Koll Moves Up With Thompson Co. Buyout : Development: Real estate group makes first big push into home building. Most analysts praise O.C. firms’ merger but say industry competitiveness forced it.
Koll Real Estate Group Inc., making its first major push into home building, on Wednesday agreed to buy Kathryn G. Thompson Co., a prominent Orange County home builder, for about $7.5 million.
In exchange for the privately held home construction company, Kathryn Thompson and her partner, former Koll Co. executive J. Harold Street, are to receive $1.7 million in cash, 2 million shares of newly issued Koll Real Estate Group stock and a chance to buy an additional 2 million shares. Koll Real Estate also assumed nearly $5 million of Kathryn G. Thompson Co.’s debt.
The acquisition is a perfect fit for the two companies, said Thompson: “I’ve known Don (Koll, chairman of Koll Co.) for a number of years. . . . Koll is commercial, we’re residential--it’s a wonderful blend.”
Local real estate analysts generally praised the merger but said it indicated how increasingly competitive Southern California’s home building industry has become. Smaller, regional builders, including Thompson, have found it difficult to obtain sufficient capital to compete with large public builders, such as Los Angeles-based Kaufman & Broad, California’s largest.
The deal calls for Thompson, 53, to remain chairman and chief executive of the Aliso Viejo-based building company, which will retain the Kathryn G. Thompson Co. name as a Koll subsidiary. The company has erected 8,000 homes and condominiums. Thompson also will become a director of Koll Real Estate, which is 15% owned by the management of the Koll Co., a privately held commercial developer in Newport Beach.
Thompson will help Koll Real Estate develop its large landholdings, which include 1,200 acres of the Bolsa Chica wetlands, a controversial coastal property near Huntington Beach and 870 acres already zoned for more than 550 homes in San Diego County.
Thompson, which will build mostly entry-level homes priced below $200,000, brings to the deal partnership interests in a 230-acre project in Aliso Viejo where 1,435 homes are planned, and a 92-unit development under construction in Oceanside. At least one Thompson project, the Vistas, a 119-unit condominium project in Aliso Viejo, is not part of the deal because construction has already begun.
“Kathryn and her company bring to KREG expertise in residential design, regulatory approval, construction and marketing,” said Donald M. Koll, Koll Co. chief executive.
A longtime Republican activist, Thompson attracted controversy for actively campaigning for Democrat Bill Clinton in 1992. Thompson started her first real estate company in 1967 and established her current residential development company in 1985. In 1991, she became the first woman home builder voted into the California Building Industry Hall of Fame. She is also a major figure in Orange County’s arts and charity community.
The Koll Real Estate deal “makes a lot of sense,” said Al Gobar, a Placentia-based real estate analyst, because it gives Thompson’s company access to capital and expands its geographic scope.
“Financing is critical for home building today and publicly traded companies have better access to capital,” he said.
Though the acquisition was announced after the markets closed, Koll Real Estate Group stock fell 3.13 cents to 31.25 cents in Nasdaq trading Wednesday. In August, the company reported a second-quarter loss of $4.5 million, or 11 cents a share, compared to a loss of $3.5 million, or 9 cents, a share a year ago.
To close the deal, Ray Pacini, chief financial officer of Koll Real Estate, said his company agreed to provide Thompson and her partner with warrants that allow them to eventually buy 2 million additional Koll Real Estate Group shares at 25 cents a share.
“As the county and the state come out of the recession, the home-building industry represents a very good opportunity for us,” he said.
Pacini said that given Koll Real Estate’s extensive landholdings, discussions with other home builders are continuing and his company might buy another residential builder by the end of the year.
“It’s an interesting launching platform for Koll into this buoyant Orange County home-building market. Their timing is excellent,” said Kenneth Agid, president of the Marketing Department, an Irvine real estate consulting firm.
