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Capital Pacific Holdings Sells Off Minority Stake

Development: Fast-growing home builder brings in $40 million from investors to reduce high-priced debt.


NEWPORT BEACH — Home builder Capital Pacific Holdings Inc. sold a minority stake in the company for $40 million Thursday to private investors headed by a San Francisco money management firm.

Capital Pacific, formerly J.M. Peters Co., has grown rapidly since its current owners bought it from federal regulators in 1992.

But the growth was fueled by $100 million in bonds carrying a 12.75% interest rate, and debt payments have hampered the company's ability to capitalize on Southern California's resurgent housing market.

The investment by Farallon Capital Management will help Capital Pacific complete a high-end project above the Braemar Country Club in the San Fernando Valley and develop new luxury homes on the Palos Verdes Peninsula.

"The market in Southern California is generally rising," said Farallon managing partner Steve Millham, adding that his firm may invest in additional Capital Pacific projects at a later date. "We want to be able to meet the demand."

Capital Pacific Chairman Hadi Makarechian, who had owned just under 75% of the company's stock, said he sold shares representing a 16.57% interest in the company to the Farallon group for $10 million. He retains a 58.38% stake.

At the same time, the investors provided $30 million in new capital for the company.

Most of the company's assets and liabilities, along with the new funds, will be placed in a new operating subsidiary, Capital Pacific Holdings LLC. The operating company will be 68% owned by Capital Pacific Holdings Inc. and 32% by the new investors.

Capital Pacific had disclosed previously that it had found an investor. Its stock closed the day unchanged at $3.75 a share in American Stock Exchange trading.

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