Shift in Ownership at Koll May Hasten Wetlands Project

In a move expected to hasten the development of one of Southern California’s largest wetland areas, Koll Real Estate Group said Tuesday that it is turning over majority ownership of the company to bondholders, who will assume nearly $200 million of the company’s long-term debt.

Newport Beach-based KREG, which for years has planned a controversial development in the Bolsa Chica area of Orange County, will swap a 90% stake in the company in exchange for shedding $194 million in outstanding debt that was hampering the company’s development efforts.

If approved by shareholders next year as expected, the transaction will allow the company to seek new funding to develop 390 acres of the Bolsa Chica site for 3,300 homes. The project still faces lawsuits from environmentalists, however. The company is hoping to sell 880 acres of nearby wetlands to state and federal agencies by the end of the year.

As part of the stock-debt swap, Koll would relinquish six seats on a newly created 10-member board to representatives of the bondholders. But the new owners don’t plan any management changes, said Wilbur Ross, senior management director of Rothschild Inc., an investment banking firm that represents the bondholders.

Don Koll, who runs the Koll real estate empire, would remain chief executive of KREG.

“We’re very comfortable with Don Koll in the picture,” Ross said. “We think he is very well suited to do the task.”

Ross added that Koll’s recently announced return to the company’s top position was not a condition of the deal.

“Don feels that doing this transaction is in the best long-term interests of the company,” said Raymond Pacini, KREG’s chief financial officer. “He’s used to working with outside boards and partners.”

The plan, if approved, would allow KREG to seek the $25 million in financing necessary to develop the parcel.

“In the absence of a restructuring, the company would not be able to raise the capital necessary to develop Bolsa Chica,” said Jeff Schaffer of investment firm Alex. Brown & Sons.

KREG executives say they plan to begin construction on the 390-acre mesa site as early as the second half of 1997. But environmental groups have taken steps to block the development.

So far two lawsuits have been filed against KREG and the California Coastal Commission that could delay construction.

“Koll may have the financial backing, but it doesn’t have community backing or the water for the project,” said Flossie Horgan, acquisitions chair for the Bolsa Chica Land Trust.

Although KREG’s primary asset is the beachfront Bolsa Chica land, it also owns other residential land in San Diego County and provides development services for corporate clients in the Western United States and Asia.

Its stock, which trades under the Nasdaq symbol KREG, was up 3.1 cents to 18.8 cents Tuesday after the reorganization was announced.

KREG was officially founded in 1993 when Bolsa Chica Co. acquired the development arm of Koll Co., which had been managing its developments for three years. Bolsa Chica’s predecessor issued the bonds in 1989 when it was spun off Henley Group Inc.

If the deal is approved, the largest stockholder will be Wheelabrator Technologies of Hampton, N.H., with 11%. It was one of the companies spun off the Henley Group and received a large portion of its sister company’s bonds at that time. Other large bondholders of KREG include Bank of America, Dutch bank ING, CNA Insurance and Merrill Lynch.

If the transaction is completed, Don Koll will own less than 1% of the company.