Arizona and European Investors Have $94 Million for Unfinished Projects

Posted By Mike Padgett

March 16, 2009

SCOTTSDALE, Ariz. – With about $94 million in his pockets and a camera in his hand, Paul Charles is anything but your average photographer.

Charles is vice president of Laguna Pacific Inc., a development company partnering with an $8 billion investment banking firm in Europe. Last summer, the companies formed a joint venture to buy about $94 million worth of unfinished residential land developments in Arizona, California and Nevada, starting with Arizona.

Laguna Pacific is committed to 20 percent of the investment, with the remaining 80 percent coming from the European group. Charles declined to name the European investment firm.

Topping the joint venture’s priority list in metro Phoenix are those residential developments with lots ready for construction of houses. Other desirable properties include land with residential zoning, multifamily zoning or mixed-use zoning that includes residential uses.

In late 2008, when the company began contacting private developers whose projects had stalled, “within days we had 60 projects that were just – boom – thrown out at us,” Charles says.

Among those offers was at least one from a private developer in which there is “no value on the dirt and 50 to 60 cents on infrastructure dollars” spent to add streets, sidewalks and underground utilities, Charles says.

Residential developments have stalled across Arizona, as elsewhere, because of the rapid decline in market values of land and housing. Victims of the decline include developers left with unfinished residential developments where the value of the property is less than the loans they owe on the property.

Charles is cruising metro Phoenix, from Queen Creek to Buckeye, taking photos of land where the economic crisis in recent years put the brakes on residential developments. Laguna Pacific and its European partners also are interested in multi-use properties with a residential component. They’re not interested in commercial or industrial properties.

Early today, with his camera and his list of properties to visit, and dressed in khaki slacks and a Columbia hiking shirt, Charles was headed off to visit “half a dozen properties” in the West Valley. He declines to identify the properties or the owners. Charles adds that the partnership is bullish on the education, medical and assisted living sectors.

Charles says that while the real estate market is showing signs of stabilizing, one negative factor on the near horizon involves “about 43 percent of the adjustable rate mortgages” expected to reset over the next two years to balloon payments and higher interest rates.

“That,” he says, “potentially could be a second (financial) tsunami that could have a real effect on property valuations.”

Charles says Laguna Pacific has constructed 50 million square feet over four generations across the United States. Its current chairman and CEO is Brad Gorman. Laguna Pacific and Barker Pacific Group, in a joint venture, proposed the Pier 202 development on 27 acres on the south back of Tempe Town Lake. The property and the concept were sold in 2007 to The Wolff Co., according to news accounts.

Charles adds that the European investment fund is interested in starting a second fund, depending on the outcome of the existing $94 million joint venture.

“They have considerable capital that they’d like to deploy, and this is really our first test of the market,” he says. “If we do well with this, then we’ll continue to move forward.”

Charles is a veteran of investments. In the 1980s, he was president of CNF Inc., a private company that designed, made and marketed peripherals for laptop computers. One of the achievements was the miniaturization of zip drives. The company also made “portable CD-ROM drives, numeric keypads, auto adapters, monitor stands and universal docking stations,” according to a May 1998 press release announcing CNF’s relocation to Scottsdale from Silicon Valley. Charles says the company later was sold.


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Mar 16th, 2009

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