NEWPORT BEACH — Real estate mogul Donald M. Koll said Monday that he is stepping down from the board of Wells Fargo Bank's parent company and acknowledged that his Koll Co. is linked to $76 million in problem loans mentioned in the bank's annual report.
Koll confirmed that he is the director referred to in a section of Wells Fargo's recent annual report disclosing that the bank has placed $76 million in director-related loans on non-accrual status.
But the 59-year-old Newport Beach developer--responding to a report first published in a San Francisco business weekly--said his decision not to seek reelection to the Wells Fargo & Co. board of directors later this month is not tied to any loan problems.
"I decided to retire (from the Wells Fargo board) at the same time I decided to resign from the Grubb & Ellis board, because most of my time is taken up with projects in Baja California and I can't make the meetings in San Francisco," where the two boards meet, said Koll. He resigned from the Grubb & Ellis board of directors about four months ago.
The Baja projects are Cabo del Sol, an 1,800-acre resort with four hotels, 600 condominiums, 2,800 single-family homes and three 18-hole golf courses, and Palmilla, a 900-acre resort with one hotel, a 27-hole golf course and 1,300 lots for custom-built homes.
Wells Fargo reported in its annual report last month that loans to companies with ties to one of its directors were considered "non-accrual" loans--a term with several meanings.
Citing a longstanding policy of not discussing its customers' accounts, Wells Fargo declined comment Monday on its relationship with Koll and his company.
A bank spokesman, however, said that a non-accrual loan can be one on which interest or principal payments are late; in which the borrower's ability to repay all or part of the principal in a timely manner is uncertain or on which a portion of the principal has been written off.
Koll said Monday there is just one loan involving his company and that the non-accrual designation involves a decision by federal thrift industry regulators to write off a portion of the balance.
"The loan is current," he said.
The Koll Co. and defunct Columbia Savings & Loan Assn. were joint partners in developing a large commercial office complex that is part of the Koll Center Irvine North and was being financed with a loan from Wells Fargo, Koll said. He said about $56 million is still owed.
The loan is secured by two restaurants and an office tower. The restaurants are both operating and the office tower is more than 90% occupied, said a Koll spokesman.
"Wells Fargo made a loan to that building (project) and subsequently Columbia was taken over by the Resolution Trust Corp.," Koll said. The RTC decided that the property's value had declined since the loan was made and charged off a portion of the principal, Koll said.
Columbia was seized by federal regulators in March, 1991, and many of its assets were sold in September. The RTC--the federal agency formed to liquidate failed thrifts--maintains custody of the loan to the Columbia-Koll partnership.
But Koll said the partnership deal was structured so that Columbia was liable for the entire loan.
"I have no liability whatsoever, either personally or corporately," he said. Still, because of the partnership, the loan is considered a director-related loan by Wells Fargo.
While Koll maintains there was no suggestion from anyone at Wells Fargo that he should step down from the board , at least one commercial real estate specialist says there are ethical concerns that should have been raised.
"He may have felt some kind of conflict" which was a factor in his decision, said Gary Wescombe, a partner in the Newport Beach office of Kenneth Leventhal & Co. "And if not, there ought to have been. It's a difficult position. . . . What do you do when your fellow directors need to discuss a problem loan you are part of, excuse yourself from the room?"
But Koll said he was not pressured into leaving the Wells Fargo Board and that the decision not to seek reelection was his alone.
"We have no problem loans," he said, "and we have a long relationship with Wells Fargo, we still have a good relationship and we plan to have a good relationship in the future."