May 11 (Bloomberg) -- A package of Los Angeles real estate on sale for 35 cents on the dollar is attracting investors to the depressed shares of Meruelo Maddux Properties Inc., the biggest private landowner in the city's four-square-mile downtown.

The stock has plummeted 85 percent since an initial public offering 15 months ago as the global credit crisis threatens to disrupt refinancing of $200 million in mortgage debt coming due in the next 12 months, as well as completion of the city's tallest downtown residential tower.

Meruelo Maddux owns or controls 80 acres including the Little Tokyo Shopping Center, home of the country's largest Japanese supermarket, as well as warehouses and buildings used in Tom Cruise's action film ``Mission Impossible III.''

``It sure looks like a cheap way to play the downtown L.A. market,'' said Mike McGarr, a portfolio manager at $2.4 billion Becker Capital Management in Portland, Oregon, which has added shares this year and owns 1.55 million. ``You're not hanging your hat on a few properties. You've got about 50 properties in various states of development or redevelopment.''

Meruelo Maddux's market capitalization of $142 million is about a third of the book value of its properties minus debts. Loan payments and maintenance consume $500,000 a month more than the company takes in, eroding the developer's $13.5 million in cash.

Raising Money

To raise money, the company said May 2 it may sell up to $300 million worth of stock, warrants or debt. It's also delaying projects and selling holdings including a 119,000-square-foot (11,055-square-meter) distribution center leased by FedEx Corp.

Chief Executive Officer Richard Meruelo told analysts in March he may net more than $26 million on the warehouse sale. The company will release first-quarter results May 13.

``We're going to find out really soon the status of these property sales,'' said McGarr.

The company's holdings are worth ``significantly'' more than the book value listed in filings, Meruelo said in an April 24 interview. Depreciation accounting rules hide the properties' true value and the debt will be refinanced, he said.

Meruelo, 43, is the son of refugees from Fidel Castro's Cuba who purchased their first commercial building in downtown Los Angeles in 1972. He teamed with his parents' lawyer, John Charles Maddux, 48, the developer's chief operating officer.

The CEO owns 45 percent of the company, including 650,000 shares he bought March 10, according to a regulatory filing, when the shares were worth twice as much as now.

Advice to CEO

``A bunch of financial planners tell me to diversify and look at other things,'' Meruelo said. ``I don't know a better investment for me, personally.''

Eubel Brady & Suttman Asset Management, a Dayton, Ohio-based registered investment adviser overseeing $2.5 billion, more than tripled its stake by adding 2 million shares in the fourth quarter, according to filings. RS Investments and Blackrock Investment Management purchased stock as of March 31, the reports show.

Meruelo Maddux shares fell to a record low of $1.66 last week before the company named a new chief financial officer, Andrew Murray. Murray had led West Coast real estate investment banking for FBR Capital Markets, a unit of Arlington, Virginia- based Friedman, Billings, Ramsey Group Inc.

The appointment ``could be a decent positive from the standpoint of their relationships with the lenders,'' said investor McGarr. ``We'll see.''

Meruelo Maddux fell 1.2 percent to a record low of $1.64 on May 9 in Nasdaq stock market trading. One analyst in a Bloomberg survey says to buy shares, two say to hold and one advises selling.

Reverse Split

The company will ask stockholders at the May 21 annual meeting to allow the board to approve a reverse stock split ranging from 1-for-3 to 1-for-10. The move may help attract institutional investors that have rules against purchasing shares trading below a minimum price, such as $3 or $5.

Meruelo Maddux's biggest bet is that people will want to live downtown, where 500,000 work but only 35,000 dwell.

``Twenty years ago, it was dead -- when 5:30 rolled around, the sidewalks were rolled up,'' said Mark Tarczynski, 52, a senior vice president at CB Richard Ellis Group Inc., who moved into the area a decade ago. Now, when the National Basketball Association's Los Angeles Lakers play at Staples Center or concerts are held at Nokia Theatre, ``this place rocks.''

Meruelo Maddux is building a 34-story rental tower, known as 717 Ninth, that will be Los Angeles's tallest downtown residential structure. Twenty floors have been erected so far. The building is across the street from a 50,000-square-foot Ralphs Grocery Co. outlet, the first supermarket-chain store to open downtown in more than 50 years.

Bank Balks

While a ``large bank'' pulled out of a $97 million construction loan for the tower in January, the project will be completed on time next year, Meruelo told analysts on a March 31 conference call, without identifying the lender. The company is negotiating a new loan, he said.

The developer was downgraded on April 4 by RBC Capital Markets analyst Richard Moore. Residential growth forecast at the time of the IPO is ``likely to be delayed indefinitely,'' said Beachwood, Ohio-based Moore, who cut his rating to ``sector perform.''

Meruelo said local bankers are still willing to lend for smaller deals. Borrowing costs are dropping, Los Angeles is a growing area and credit markets will ``return to normalcy'' within a couple of years, he said.

To contact the reporter on this story: Peter J. Brennan in Los Angeles at pbrennan3@bloomberg.net.

Last Updated: May 11, 2008 10:14 EDT