Surviving Near-Demolition : O.C.’s Former J.M. Peters Rebuilds After Housing Slump

Three years ago, Hadi Makarechian and Dale Dowers stepped into the spotlight when they bought J.M. Peters Co., a home-building company so damaged that few thought it could recover.

But like an “ER” patient miraculously revived by the paddles, the Newport Beach builder has enjoyed a strong comeback in California and is eyeing expansions into the East Coast, deep South and abroad.

It’s become one of the first builders to set up a World Wide Web page and is becoming an innovator in the use of steel framing and on-site house assembly.

Now, Makarechian, who is chief executive officer and chairman of what has been renamed Capital Pacific Holdings Inc., has decided to give up his chief executive officer title next month to “focus on future strategic decisions.”

He will head the company’s expansion efforts and focus on acquiring other home builders.

“We’re in control of events here now,” Makarechian said. “Before, we had to be here every second of the day fighting fires, and it seemed every time you put out one, another popped up.”

Day-to-day decisions will be made by acting CEO Dowers, who is likely to be confirmed as the new CEO in the next few months. Makarechian will remain as chairman.

“We’ve gone from being a troubled company to being a stable one, and now that we’re stable, we can go to the next stage,” Makarechian said.

Once considered the premier builder of luxury homes in Southern California, J.M. Peters was hit especially hard by the real estate downturn.

*

Company founder James M. Peters sold his firm in 1985 to San Jacinto Savings & Loan Assn. It was seized by federal regulators five years later. In 1992, Makarechian and Dowers bought the company from the Resolution Trust Corp. for $47 million.

When they bought it, the company was building only 115 homes, was operating in Orange and Riverside counties, had losses of more than $200 million and carried $200 million in defaulted loans.

Now, the recapitalized company will build 1,200 homes this year in various markets including California, Texas, Nevada and Arizona.

“One of our most important goals was to diversify, and we’ve done that,” Makarechian said.

*

Although he would not reveal what foreign countries the company is looking at, he said it will expand in Nevada and is looking at Utah, the East Coast and the South.

In California this year, the company opened six new subdivisions.

It just unveiled Mulholland Park, a group of luxury homes in Los Angeles County. Located in the Santa Monica Mountains, the project has sweeping views and a magnificent guarded, gated entry reminiscent of Paramount Studios. The estates range from four to seven bedrooms and are priced from $650,000 to $1 million.

“Their timing could be impeccable on this Mulholland project,” because there is housing demand by entertainment industry moguls, said Jeff Meyers, president of the Meyers Group, a real estate data group in Irvine.

But he also acknowledged that “they are putting a lot of dollars at risk.”

With home sales up, the company posted a $550,000 profit during its third quarter ending in November. That compares to a $771,000 loss the same time last year. And, for its fiscal year ending Feb. 28, the company expects to post revenue of $230 million and about a $3.5-million profit.

Still the company’s stock has languished in recent years, reaching a 52-week high of $4.50 a share Jan. 5. On Friday, the company’s stock was down 12.5 cents to close at $3.87 a share.

“A couple of their O.C. projects are selling really well,” said Al Gobar, a real estate consultant in Brea. “They’re selling a lot of homes here. They’ve got a good reputation.”

Part of the company’s recapitalization is due to proceeds from a $100-million bond financing completed a few years ago, a $90-million credit line with Bank One, a $10-million credit line with a bank in Nevada and another one in Texas. The company has only drawn down about $56 million on its credit lines, Makarechian said.

The company recently bought its headquarters, a three-story building on MacArthur Boulevard in Newport Beach.

*

Capital Pacific also has become one of the first builders to join the Internet with a World Wide Web page. Viewers can “walk” though a photographed home using the cursor to move from room to room and the keyboard to close in on certain views.

The company also has begun using steel framing in Nevada and has created a flat bed that allows employees to assemble parts of the house on site. Capital Pacific might bring steel to its California developments.

“It’s been very successful. We can now build four homes a day per flat bed,” Makarechian said. “It’s environmental and it’s cheaper. We’re ready if lumber prices go through the roof again. We can just switch.”

The company plans to use steel framing in a 168-home division called Courtney Ranch, just south of Las Vegas. The homes will be from 1,500 to 2,000 square feet and will use about 5.5 tons of steel per house.

The company estimated construction costs will be $3 less per square foot, a savings of about $6,000 per home.

“It’s been very successful,” Makarechian said. “We are just going to try and keep polishing our techniques.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Staging a Comeback

Capital Pacific Holdings, formerly J.M. Peters Co., regained its footing and posted a profit in 1994 and 1995. Revenue and net income, 1991-1995:

Revenue

(in millions):

1991: $216

1992: $185

1993: $76

1994: $91

1995: $143

Net Income

(in millions): 1991: -$108

1992: -$58

1993: -$85

1994: $4.9

1995: $3.6

In the Works

Capital Pacific has expanded into Nevada, Texas and Arizona through acquisitions and a $100-million bond sale. Projects under development:

*--*

California Projects Total units planned Wholly owned 11 1,560 Joint ventures 2 150 Nevada Wholly owned 7 1,297 Joint ventures 1 91 Texas Wholly owned 12 1,131 Arizona Wholly owned 2 233

*--*

Note: As of Feb. 28, 1995

Key Events

August 1992: Capital Pacific Homes, headed by Hadi Makarechian and Dale Dowers, purchases controlling interest for $47 million.

September 1993: Acquires Durable Homes Inc., a Las Vegas home builder, for $5 million in cash and stock.

October 1993: Posts a $4.7-million quarterly profit, its first in 39 months.

May 1994: Raises $100 million in private bond sale.

Nov. 17, 1994: Acquires Texas-based Clark Wilson Homes for $14 million.

Oct. 17, 1995: J.M. Peters changes its name to Capital Pacific Holdings.

Source: Capital Pacific Holdings; Researched by JANICE L. JONES / Los Angeles Times