Lyon Co. Seeking Funds From Afar : Homes: Giant builder, unable to secure its usual financing and hammered by recession, will concentrate on lower-priced housing. It expects ’92 to be a down year.

NEWPORT BEACH —  The giant William Lyon Co., hit as hard by the credit crunch as its smaller brethren in the residential development industry, is looking east--to Wall Street and to Hong Kong--for new funding.

And the company, which last year built 3,861 homes and apartments in California, expects 1992 to be a slower year as the recession continues its chokehold on the state’s economy.

In an effort to keep its position as the state’s largest home builder, the company is re-emphasizing its roots.

William Lyon, the company’s founder and chairman, has described his firm as being known for building “Chevrolets, not Cadillacs.” And in recent months the company has launched a new series of affordable homes that are smaller and have fewer amenities than many the company was building just a year ago.

While Lyon officials maintain that it is not accurate to picture the nearly $800-million-a-year company as financially ailing, they say that traditional sources of borrowed money have dried up, forcing the company to dig deeply into its own cash resources to keep projects going.

One result is that the company cannot take advantage of recessionary discounts by placing large advance orders for building materials, as it has in other downturns.

“We can’t do it because a major portion of our liquidity is tied up in projects that we normally have bank loans on,” said Dick J. Randall, the company’s president and chief operating officer.

Ken Agid, an Irvine-based housing industry consultant, said the cost to the Lyon Co. of holding on to its huge inventory of land--the company has more than 7,000 acres in California, most of it in Southern California, and more than 3,500 acres in Florida--has “stretched” the company’s finances.

“What you hear on the street,” Agid said, “is that the banks have them cross-collateralized on everything including the general’s underwear. But they will make it. There is probably no one around who could run that company better than the current management.”

Agid said he believes that the landholdings that currently are the Lyon Co.’s biggest drain will “turn around and become a major asset within 12 months, as the market comes back. And maybe then Bill Lyon will buy the bank.”

In the interim, the company has all but stopped building apartments after a push in which it erected 1,770 rental units in Southern California last year, and expects its housing construction to remain about the same at 2,100 units--most of it in Southern California.

And as it prepares for a resurgent economy, Randall said, the Lyon Co. “will continue to explore opportunities further inland in Southern California” and focus on the lower price ranges in its various markets, with single-family detached homes ranging from the low $100,000s in the Temecula area to the low $200,000s in Orange County.

One result will be a significant tumble in revenue--expected to drop about 22% from $772 million in 1991 to $600 million this year.

Randall said government regulations have all but eliminated the nation’s thrift and banking industries as sources of the large amounts of financing that a Lyon-size company needs.

The company--which is developing a 1,000-acre, master-planned community in Rancho Cucamonga and a 1,400-acre community in Stockton--has abandoned thoughts of concentrating more of its effort on land development.

“The bank financing crunch eliminates anything in the way of large developments for the long term. We have to find another major source of funds,” Randall said.

While there has been a lot of enthusiastic talk about the nation’s $30-billion pool of pension funds coming to the rescue of the housing industry, Randall said he has seen little action.

“We have met with almost everyone we can think of,” in the search for financing, he said, “and while there is a lot of talk circulating about pension funds and other large investment pools, I don’t see a lot of that money coming into the real estate market yet.”

As a result, he said, he has been negotiating with private financial sources in Hong Kong.

“One of them has $50 million to put into California real estate,” said Randall. “That’s not much, but it’s more than we can get from the banks.”

Randall, who also runs the company’s Northern California division and lives and works in San Jose, said he and other Lyon officials also are talking to brokers in New York about so-called blind-pool private offerings of investment securities.

In a blind pool, the project or projects to be financed by the offering proceeds are not identified. The investors literally trust in the company’s good judgment. Using blind pools enables a developer to raise funds and use the money wherever the market dictates instead of being tied to pumping the funds into a specific project.

Sale of blind-pool securities also would enable the company to tap Wall Street without giving up the privacy and control that majority owner Lyon cherishes.

But Lyon, who is also the major shareholder of the Presley Cos., an upscale Newport Beach home builder, did take that company public late in 1991 with an offering of 38% of its stock.

Randall said the company hasn’t solidified any financial deals yet and that whatever else does turn up, it intends to continue borrowing from its banks.

“It’s not a case of us not getting financing from the banks,” he said, “but a case of it now taking five months to get a loan approved and funded where it used to take 30 days.”

That has slowed Lyon’s sales considerably, said Randall, who believes that the company could have built and sold 200 more homes this year than it already has if its banks would have cut loose the funding.

Describing the situation as nightmarish, Randall said a project in Northern California attracted prospective buyers who camped out to get a place on the waiting list and buyers who came up with down payments and signed deals before construction began.

“And then the bank held things up and we had customers getting angry because we couldn’t deliver the homes they’d already bought. We were damn near dead” on that project.

Lower Sales William Lyon Co., the largest home builder in California, expects home building to be stagnant in 1992. Company revenue will drop as it cuts apartment construction by 90%. In millions of dollars 1988: $900 1989: $1,500 1990: $1,200 1991: $772** 1992*: $600* * Los Angeles Times estimate ** No longer includes Presley Cos. Source: William Lyon Co.

At a Glance: William Lyon Co. * Corporate Headquarters: Newport Beach * Founded: 1954 as Luxury Homes; became William Lyon Co. in 1972 * Officers: William Lyon, chairman and chief executive officer Dick J. Randall, president and chief operating officer * Divisions: Northern California, Southern California, Florida and a Newport Beach-based apartment division * Landholdings In Orange County: 1,300+ acres In Southern California: 4,250+ acres In Northern California: 3,025 acres Nationally: 10,000+ acres * Employees: 388 Source: William Lyon Co. Researched by DALLAS M. JACKSON / Los Angeles Times