Developer Mike Harrah said he remains interested in buying 14.3 acres surrounding the headquarters of the Orange County Register despite an earlier deal for the land falling apart and the newspaper’s parent company’s latest complications.
Freedom Communications Inc.—the Santa Ana-based media company that owns the Register, the Press-Enterprise in Riverside, and various weekly publications—last week filed for Chapter 11 bankruptcy protection (see related story, page 1).
The company reported losses of more than $40 million over the past two years. It said this year is expected to be profitable on an operating basis, but also reported facing an estimated $51.2 million in secured debt.
Freedom’s court filings listed consolidated assets with a book value of about $149 million at the end of September, but said their fair market value was “substantially less” than that.
The company’s chief tangible assets are the parcel of land surrounding the Santa Ana headquarters of the Register and a 6-acre site in Riverside used by the Press-Enterprise.
Each could be sold off to pay creditors. That would continue a pattern of Freedom selling off newspapers, a former headquarters building and adjacent property in Irvine, and other assets over the past several years.
Freedom moved into the five-story Register building at 625 N. Grand Ave. in 2013 and sold the property to Harrah last year, raising about $24 million.
It leased back the 173,000-square-foot property from him under a long-term deal.
About $18 million of that sale’s proceeds went directly to Freedom’s largest lender, Greenwich, Conn.-based Silver Point Finance LLC, which holds a mortgage on all of the real estate that Freedom still owns.
An additional $4 million of that sale’s proceeds was used by Freedom as a deposit on the leaseback of the office building, court filings show.
Silver Point’s role as lender with claims on the publisher’s two remaining parcels of land—which are owned by Freedom with various affiliates—appears to have played a part in the timing of last week’s bankruptcy filing, based on a reading of court documents filed in the case.
Auction
Both the 14-acre Santa Ana land site and the Riverside property were due to be sold via a foreclosure auction on Nov. 3, with proceeds going to pay off Freedom’s largest secured lenders, according to court documents.
The Nov. 1 bankruptcy filing appears to have forestalled the foreclosure auctions for the time being, although a sale is still expected.
A proposed debtor-in-possession financing deal with Silver Point calls for Freedom to “diligently pursue the sale” of the Santa Ana land in the next few months, according to terms of that $22.5 million loan agreement.
Harrah told the Business Journal last week that he’s still looking to buy the Santa Ana land next to the Register’s offices, which in theory could be redeveloped into a large residential and retail project, perhaps featuring high-rise towers.
“I’m interested in the whole thing,” said Harrah, who could also find himself part owner of Freedom Communications under a proposed restructuring deal. “The whole package.”
Harrah, the largest commercial property owner in Santa Ana, has already made one attempt to buy the site.
Freedom entered into a deal in January with Harrah’s Caribou Industries under which the real estate company would buy the 14-acre land site, which now holds a printing press used by the Register, as well as vacant land and older retail buildings.
Caribou is at least the second area developer that has looked at buying the land.
Freedom entered into an agreement in late 2013 to sell the property to Newport Beach-based William Lyon Homes, with the expectation of residential development on the property.
That deal never was completed.
Terms of the deal with William Lyon Homes were not disclosed.
The proposed sale to Caribou—for $38.5 million, or about $2.7 million an acre—was contingent on the developer getting the necessary entitlements for redevelopment on the land, and was due to close at the end of May.
“Due to delays in obtaining the necessary entitlements, Caribou Industries requested an extension of the due diligence period through December 31,” Freedom Chief Financial Officer Chris Dahl said in a court filing last week.
The company opted not to grant the requested extension, and the agreement was terminated in late May, Dahl said.
It’s not known how much progress Caribou made in the entitlement process for the site.
There appear to be no records of any proposed redevelopment plans filed with Santa Ana’s planning department in the first half of the year.
Land Values
The land is valued at about $13.8 million, or about $965,000 an acre, without the entitlements, according to a recent appraisal of the property by Cushman & Wakefield Inc.
The 6-acre Riverside site has an estimated value of about $4 million, according to court documents.
Harrah appears to be on good terms with Freedom’s current management team.
Richard Mirman, an investor in Freedom who took over as chief executive and president of the media company in March, said last week that Harrah would be part of a new investor group vying to buy the company out of bankruptcy.
Mirman and Eric Spitz, chairman of the company, are listed in court documents as the lead investors in the group.
Harrah’s role in the new investment team has not yet been disclosed in court documents, and the developer declined to discuss the plans now in the works.
Court filings show that Harrah is owed about $2.1 million by Freedom; that’s related to a promissory note that was issued to Caribou as part of the sale and leaseback of the Register’s headquarters.
That money owed to Harrah could in theory be converted into an equity stake in the new ownership group.
