With Sale, Owner Hopes It Can Stem the Red Tide

By MELINDA FULMER

Feb. 12, 1997 12 AM PT

SPECIAL TO THE TIMES

NEWPORT BEACH —

With the state’s agreement to purchase the 880-acre Bolsa-Chica wetlands, financially beleaguered Koll Real Estate Group will get a major cash infusion and a chance to start reversing the steady stream of losses.

The company, which acquired Bolsa Chica and other residential properties in 1993, has invested nearly $45 million in planning development of the coastal property.

However, the project, which constitutes about 80% of the company’s assets, has been reduced from almost 6,000 homes to 2,400 and has yet to produce any revenue.

In fact, in the first nine months of 1996, Koll took a $22-million loss on revenue of $25 million.

The company hopes to receive about $223 million from the sale of both the lowlands and, eventually, the mesa properties above, which would allow it to break even, said Raymond Pacini, chief financial officer.

In addition, the sale of the lowlands to the state eliminates most of the major objections from environmentalists, Koll officials say. For the company, that would lessen legal fees and allow the company to concentrate on the development of up to 2,400 homes on the nearby mesa.

“The mesa is not the controversial part of the project. This takes that away from being an issue,” said Richard M. Ortwein, company president.

However, a representative of the Angeles Chapter of Sierra Club said that group will continue in its suit to block the development despite a sale to the state. A court date is set for April.

Koll Real Estate Group, which had been mired in long-term bond debt, got its first financial break in late November when its bondholders agreed to swap most of its debt, about $200 million, for a 90% ownership stake in the company.

Company officials expect that deal to allow them to seek new financing to build Bolsa Chica.

Wilbur Ross, senior managing director of Rothschild Inc., an investment banking firm that represents the bondholders, said the $25-million sale to the state is no “show-stopper” for Koll’s shareholders, but acknowledged it should ease development on the rest of the property.

“Obviously, we agreed to the exchange offer, so we must think something good can come out of this,” he said.

Koll Real Estate Group could begin grading the 210-acre site on the mesa in the first half of 1998, Ortwein said.

Its home-building arm, Koll Communities, would develop part of the land and the rest would be sold to other merchant builders. According to a filing with the Securities and Exchange Commission last year, homes in the mesa development would range from $179,000 to $595,000.

“It is very timely for this project to move forward,” said Ken Agid, a real estate consultant with the Marketing Department, a Costa Mesa-based real estate consultant.

“Builders are now recognizing the shortage of available supply of land and they are paying more for it,” he said, referring to the high prices bid for the former Chevron Oil Co. land in Huntington Beach.

If the sale to the state had not been completed, Koll officials said they would have proceeded anyway with state and county-approved plans to build on the mesa.

And they would have begun moving forward with plans to develop the 880-acre lowlands in several years.

“I guess we would fall back to the knock-em-out-drag-em-out let’s-build-in-the-lowlands issue,” Ortwein said.

He denied rumors early in the week that the company was teetering on the edge of bankruptcy because the deal had been delayed so long.

“A failure of the lowlands sale will not require us to file bankruptcy,” he said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Koll Real Estate Group

Parent company: Koll Co.

Headquarters: Newport Beach

Chairman: Donald M. Koll

President: Richard M. Ortwein

Business: Real estate investment and development

Major asset: 1,600-acre Bolsa Chica wetlands in Huntington Beach