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Canadian Firm Bounces Back : Catalina Condos Get 3rd Try

June 07, 1987|RUTH RYON | Times Staff Writer

French film star Louis Jourdan will appear on American television starting this month to promote a Santa Catalina Island condominium project that has had more ups and downs than the once-besieged developer who is still behind it.

The developer is Jack Poole, but the firm he oversaw from his Vancouver, Canada, offices when it started construction on the Catalina project, known as Hamilton Cove, is more familiar to Southern Californians.

The firm was Daon, and it is one of the many Canadian companies that cashed in on the land-acquisition trend that swept through the Sun Belt before the recession, which brought a number of developers, including Daon, to the brink of bankruptcy.

Daon's rise and fall was more dramatic than most, though, largely because of its interest in converting apartments to condominiums.

'Took Substantial Losses'

As Poole explained by telephone from his office in British Columbia, "We paid condo prices for a great number of apartment units, then got caught in a tough interest-rate cycle. We took substantial losses in '82." Before that, the firm's growth was remarkable.

Daon entered the American market in 1976, and within four years quintupled its profits to $51 million and nearly quadrupled its total assets to $1.67 billion.

At its peak in 1981, its stock was selling on the Toronto Stock Exchange for $13.50 (Canadian) a share. By August, 1982, the value of a Daon share sunk to less than $1, and Poole announced then that be was trying to restructure the company's bank obligations, estimated at $1 billion.

The Catalina project, which Daon began earlier that year after at least two other developers failed in their attempts, came to an abrupt halt. Two years later, construction started again. Twenty-two units were completed last July, and a clubhouse was completed last fall. Then construction stopped again.

Grand Opening Planned

Now it's under way once more with a grand opening planned next month of 56 condos of a projected total of at least 330, and models decorated by Carole Eichen.

"Hamilton Cove was launched during the high interest-rate cycle," Poole said. "Then the company went through a cash squeeze, and the project was put on the shelf. Then we had two years of uncertainty about tax reform. Remember? There was some question about whether or not mortgage interest on second homes would be deductible."

That was critical to the $1-billion Hamilton Cove project, which is basically a second-home community despite its hefty prices. Nineteen of the first 22 units were sold at an average price of $360,000, and the average asking price of the next 56 units, which are smaller, is $250,000. Hamilton Cove isn't expected to be completed until 1992, but Poole isn't concerned that the project will be stymied again. The worries that plagued him about tax reform and his company's financial difficulties are in the past, he said, as is the name "Daon" itself.

It was changed about a year ago to BCED (Bell Canada Enterprises Development) Corp., to reflect its controlling partner, Bell Canada Enterprises Inc., a holding company that had $24 billion in assets last year.

Bell Canada Enterprises Inc., which also counts the Bell Canada telephone company and Northern Telecom Ltd. among its entities, acquired more than half of Daon's shares in 1985, after Daon "came through financial restructuring and was again profitable," Poole said.

Partners' Obligations

"So, as Daon, we had 21 good years and two very bad ones, but we even picked up our joint-venture partners' obligations."

During Daon's struggle to survive, there was what Poole describes as "some serious downsizing" of its American operations. Many employees left. "But a lot of the veterans are still in the trenches," he said.

Poole became chairman of the board of BCED, a public company with shares traded in the $4 (Canadian) range on the Toronto and Vancouver stock exchanges. Bell Canada Enterprises Inc. owns 66%.

Why did he and Daon co-founder Graham R. Dawson, who has retired, decide to sell Daon's controlling interest once the firm became profitable again? "Because Daon needed some working capital, and I wanted the company to get back in the mainstream, to be able to conclude a $1-billion acquisition as we did about a year ago."

That acquisition was for most of the U. S. portfolio of Oxford Properties, another big Canadian development firm active in the United States.

The portfolio included 14 U. S. commercial properties with 11.5 million square feet of existing and potential development space, mainly in Minneapolis and Chicago. This doubled BCED's assets and raised their total value to nearly $2.7 billion.

Going in 'New Direction'

As result of the purchase, BCED is going in what Poole terms "a new direction" from being a land company to a company developing and owning commercial income property.

Converting apartments to condominiums is not, he said, "a business we intend to go back into."

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