Newport Beach-based William Lyon Homes Inc. is being cited as one of California’s most prominent land buyers of late, even as it faces deadlines this week to keep from defaulting on more than $280 million in outstanding debt.
The iconic homebuilder, which had slowed the pace of its development in recent years amid the struggling housing market, recently was part of a partnership that closed on a 26-acre former mall site near Palo Alto in Northern California.
The now-vacant Mayfield Mall site, located amid the region’s revived technology industry, is expected to be redeveloped with nearly 300 homes.
The deal, made in partnership with Newport Beach-based developer Summit Land Partners LLC, was for an estimated $65 million, or more than $210,000 a lot, according to a late August report by housing consultancy Meyers LLC in Corona del Mar.
William Lyon Homes’ stake in the venture was not disclosed.
The Mayfield Mall sale was “possibly the most significant (land) transaction” in Northern and Southern California over the past quarter, according to the Meyers report.
The consultancy has tracked nearly $560 million of residential land transactions in the two regions from the late second quarter through the end of August.
Core Markets
Land deals these days tend to be in “core markets in or around employment nodes,” which is resulting in competitive bidding, according to the Meyers report.
The Mayfield Mall project has the makings to be William Lyon Homes’ largest new home project in Northern California in several years.
The builder currently has sales ongoing at one project in Santa Clara County and eight more in other parts of Northern California.
The company sold 37 homes in Northern California in the second quarter. It sold 201 homes in total for the quarter, with 72 of those in Southern California. It also builds in Arizona and Nevada.
The company lost $11.2 million in the second quarter on revenues of $63.1 million, according to the builder’s most recent earnings report.
The report, released in mid-August, also shows the company and its lenders approaching key dates tied to some of the nearly $490 million of notes and loans the company had outstanding at the end of June.
Colony Loan
The debt includes a $206 million loan the company took in 2009 from Los Angeles-based hedge fund Colony Capital LLC and affiliates, as well as three senior notes that are due over the next three years.
The Colony Capital loan, as well as a senior note with nearly $78 million of outstanding principal, faces the potential of falling into default this week, according to filings made by the company with the Securities and Exchange Commission last month.
William Lyon Homes said last month that it didn’t make a $2.9 million semi-annual payment tied to a 7.5% senior note that was due Aug. 15.
THE NEWS:
William Lyon Homes Inc. in partnership on Northern California land buy worth estimated $65 million
BACKGROUND:
Developer posted $11.2 million loss in second quarter; faces Sept. 14 deadline on overdue payment on senior note, Sept. 16 mark on net-worth covenant
WHAT’S AHEAD:
Failure to beat grace period could trigger default on senior note and $206 million loan from hedge fund Colony Capital
The notes were part of $150 million raised by the company in early 2004. Of the initial $150 million, $77.9 million remained outstanding as of June 30.
The builder said it planned to take advantage of a 30-day grace period that runs until Sept. 14.
If the company fails to make the $2.9 million payment by then, it could lead to an “acceleration” of the builder’s obligation to repay the notes. It also could constitute an act of default, according to an Aug. 17 filing with the SEC.
Along with the Sept. 14 deadline, William Lyon Homes also needs to get a waiver from Colony Capital this week to prevent it from possibly falling into default on its $206 million loan.
14%
The $206 million loan—which carries a 14% interest rate and annual interest payments of nearly $29 million—includes a covenant that requires the builder to maintain a tangible net worth of more than $75 million.
William Lyon Homes’ tangible net worth—the value of its land and other assets minus its liabilities—was estimated to be $13 million at the end of 2010, according to the company’s annual report.
At the end of June, the builder’s tangible net worth was restated downward again, to a negative $9.7 million.
William Lyon Homes was valued at more than $900 million when the company was taken private in 2006, near the peak of the housing boom.
The company still reports financial results for its bondholders.
Colony Capital earlier this year gave the builder a waiver until Sept. 16 on the net-worth covenant. To date, an extension has not been announced, based on a reading of regulatory filings.
The builder “believes that it is in the best interests of the lenders of the term loan to extend the waiver and work with the company on a solution,” if its net worth remains below $75 million on Sept. 16, William Lyon Homes said in its last quarterly report.
Potential Trigger
If William Lyon Homes doesn’t make its $2.9 million payment tied to the $78 million senior note by this week, it could trigger a default on the $206 million loan with Colony Capital, according to regulatory filings.
William Lyon Homes has remained current on its loan with Colony Capital, and no write-down on that investment has been made, or needs to be made, according to SEC filings made by an affiliate of the hedge fund, Colony Financial Inc.
Colony Capital is in “active discussions” with William Lyon Homes and other lenders to the builder “regarding various corporate strategic alternatives including a potential recapitalization,” Colony Financial said in its latest quarterly report.
