The Bronffire Of The Vanities?

In 1988, Canadian property giant Bramalea Ltd. bought 238 undeveloped lots in Santa Clarita, Calif., a new bedroom community some 45 miles northeast of Los Angeles. The $52 million purchase--a price one land broker calls "the highest ever paid in Santa Clarita"--was one of a series of buys in Southern California and Ontario that tripled Bramalea's land holdings to $1.3 billion from 1988 to 1991. And it's the kind of deal Bramalea has come to regret. Now, it would be lucky to sell some of its land for half of what it paid, and the debt it took on to fund its buying spree threatens to sink the whole company.

Bramalea's travails are the worst of a host of problems afflicting the empire of Peter and Edward Bronfman, whose Edper Group comprises Canada's largest collection of corporate assets. The Bronfmans' Trizec Corp., North America's largest publicly held developer, owns 72% of Bramalea. The stake is worth far less than it once was. Bramalea stock trades at about 75 a share on the Toronto Stock Exchange, down from its 1989 peak of more than $20. On June 26, Bramalea suspended its dividend.

SURE THING? The stock reflects the company's gloomy outlook. Bramalea is in a desperate struggle to avoid following Olympia & York Developments Ltd. into Canadian bankruptcy court. On July 30, the grace period on Bramalea's default on a $4.4 million interest payment was due to expire. Chief Executive Marvin G. Marshall says he's confident the company's 50 or so creditors, led by Canada's five major banks, won't rush to force a court filing. But Marshall concedes he doesn't have much time to agree with them on a plan to restructure Bramalea's $4.1 billion in debt.

Marshall says he hopes to have a plan "approved by the end of August and fully implemented by the end of September." But he allows that his proposed restructuring, which calls for shrinking Bramalea to half its current $5.3 billion in assets, would take five years to work. The company's Canadian bankers, none of whom would comment for this story, may not wait that long, according to sources familiar with their thinking. "It is virtually a certainty Bramalea will end up" in bankruptcy court, predicts Alain Tuchmaier, an analyst at McLean McCarthy Inc., a Toronto stock brokerage firm.

If it weren't for the late-'80s land grab, Bramalea might now be hailed as one of real estate's savviest survivors. It owns one of North America's largest portfolios of income-producing properties, including more than 30 million square feet of shopping malls and office space in Canada and the U.S. Its Canadian malls and offices are more than 90% leased, while its completed U.S. offices are 83% filled. Operating earnings of those properties rose 4%, to $213 million, in the fiscal year ended last Oct. 31.

But the company's other unit, which includes homebuilding and land development in Ontario and Southern California, is a financial black hole. Operating earnings nosedived to $23 million in fiscal 1991, down from $102 million in 1989. And in the six months ended Apr. 30, they fell to a mere $3 million. The earnings drop, combined with interest charges tied to Bramalea's $1.3 billion in debt on undeveloped land, puts the company in a liquidity squeeze. Net cash flow was a negative $169 million in fiscal 1991 and a negative $78 million in the first half of fiscal 1992 (chart).

`A LOSER.' Bramalea hasn't given up on developing and selling its vast land reserves. But many projects are struggling. Newport Coast, Calif., Bramalea's swankiest development, has sold only four houses--priced at up to $2.1 million. It must sell 12 this year to make money. Similarly, its San Marino project in Orange County "is a loser," says one California realty expert. "They're lucky if they sell one home a month."

Bramalea's only hope is to persuade its lenders to give it more time. Marshall, a Texas developer brought in by Trizec in 1990, is proposing to sell $1.3 billion in assets by 1997, including nine shopping malls scattered across the U.S. Lenders are being asked to take equity in other projects in exchange for some of their loans. That would help trim debt to a manageable $1.7 billion in five years, and leave Bramalea with property holdings of 25 million square feet.

Most observers give Bramalea credit for handling its negotiations far better than O&Y, which antagonized lenders with its secrecy and high-handedness. "Bramalea has learned from O&Y," says Tuchmaier, "and attempted to be as cooperative as possible."

Still, following Olympia & York's collapse, "the banks are significantly more conservative and careful," Marshall says. That attitude only boosts the odds against Bramalea. Marshall still is optimistic about Bramalea's chances, but he's in rapidly dwindling company.

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