Bankruptcy Bugs Baldwin Buyers : Development: New neighbors get bargain prices as Newport company lines up a lender to keep operations going.
As the Baldwin Co. and its chief creditor prepare to head back into Bankruptcy Court on Thursday, the home building company’s customers are left staring at half-built homes in their neighborhoods and wondering whether their own investments in Southern California real estate are on the skids.
The answers are confusing, and sometimes contradictory.
Construction activity in all seven of Baldwin’s projects in Orange, Ventura, Los Angeles and San Diego counties has stopped, but all sales offices are open. No one can close an escrow, but sales agents can open them and take buyers’ deposits.
Alfred Baldwin, co-owner with brother James of the building company, says he believes that Thursday’s hearing will resolve the company’s immediate cash crunch and enable Baldwin to start paying its subcontractors and get construction started again.
Baldwin Co. filed a Chapter 11 bankruptcy reorganization petition in Santa Barbara last week after its major lender, GE Credit Corp., abruptly cut off its credit line and swept $18 million from its bank accounts, claiming that Baldwin no longer met the terms of the loan agreement. GE says it is owed almost $60 million.
Alfred Baldwin has denied the claim and says GE Credit forced the company into bankruptcy for no reason. In an interview Tuesday, Baldwin also said that his attorneys exaggerated things when they told the bankruptcy judge earlier this week that the company might not survive the week if an interim financing plan that it has proposed is not approved.
“We’re here and we’re not going away,” he said. “But obviously, we are pressuring the judge to make a decision as soon as possible.”
Homeowners in Baldwin projects are worried about the outcome.
“People have a couple of very big questions,” said Jim Thomaston, president of the homeowner association at a Baldwin-built condominium development in Anaheim Hills called Summit Court.
“Is the neighborhood ever going to get finished? And are our investments going down the tubes?” asked Thomaston--who bought his Baldwin condo 3 1/2 years ago and has sweated through several previous Baldwin financial crunches.
“When the Baldwin Co. had problems last year,” he said, “they dropped prices by $10,000 to $20,000 a unit. A lot of us who bought before that [at prices that ranged from $150,000 to $180,000] feel that we’re being forced to subsidize the Baldwin brothers.”
The Baldwin Co. continues to have a representative on the Summit Court association’s board of directors “and his position is that it’s still business as usual for the company,” Thomaston said. “But we can see that it’s not.”
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At issue in Thursday’s hearing in Santa Barbara before U.S. Bankruptcy Judge Robin Riblet is General Electric Credit Corp.’s demand that it be repaid the $53 million Baldwin owes it before the company uses up its cash to pay other creditors and build more houses.
Baldwin has asked the court to approve its plan to borrow $20 million from a new lender, Foothill Credit Corp., under terms that would give Foothill a place in line ahead of GE if Baldwin were to default.
Repeated calls to Baldwin Co.’s bankruptcy attorneys and the attorneys for GE Credit Corp. were unanswered Tuesday.
Alfred Baldwin downplayed the uncertainty and vowed that the company would be able to start closing escrows and building homes by Friday.
He also said that, despite the well-publicized bankruptcy filing, Baldwin sales offices took orders for 13 homes in the past week and that the company has 173 homes in escrow.
He said the company’s other lenders have all agreed to continue providing funding for construction projects if the court approves. A spokesman for Imperial Bank in San Diego confirmed Tuesday that the bank has agreed to loan Baldwin Co. $5 million to continue work on a project it is financing.
“The judge said [Monday] that we needed to take two days off to negotiate, and told GE that if there was no deal by then that she would put the Foothill loan into place, but probably make us give GE more collateral,” Baldwin said. “We had offered GE $15 million worth of land and the judge probably will ask for $25 million.”
The Baldwins control more than 5,000 acres of residential land in Southern California and although their companies are in default on nearly $30 million worth of property loans, Baldwin says there is plenty of land available to cover the GE collateral if necessary.
He said that the bankruptcy has not affected other companies owned or controlled by the brothers, including their Village Properties land acquisition partnership.
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But he expressed dismay at the attention the case has focused on the Baldwin brothers’ lifestyle and personal fortunes.
The brothers and their families own several airplanes, luxury homes in the exclusive Emerald Bay community near Laguna Beach, a 120-acre ranch with a 7,000-square-foot “cabin” in Montana, a yacht, a fleet of off-road race cars, and vacation homes in Cabo San Lucas.
Although their salaries from Baldwin Co. last year were a modest $130,545 each, the brothers also drew $5 million apiece in profits from the company.
Baldwin, however, says questions about lifestyle and income are irrelevant. The Baldwin Co. is a so-called “S corporation,” in effect a partnership, and under corporate law, all profits pass through to the owners, who must pay personal income taxes on every penny.
“Yes, we got $5 million [each] last year, but the company made $18 million. And this year, when things have been tough, we have put almost $8 million of our own money into the company,” he said.
Nevertheless, homeowner Thomaston--a professional financial analyst--says the brothers’ personal finances are a big topic in his neighborhood:
“I’ve heard a lot of people saying that it seems that the company is borrowing from Peter to pay Paul while the owners are living high on the hog.”
