J.M. Peters Deal a Frustrating Prospect : * Proposed Sale Will End Up Passing Newport Beach Company’s Debt on to Taxpayers

There’s probably no reason to expect good news out of the ongoing and stupendously costly federal cleanup of the savings and loan debacle. But somehow, the pending sale of the J.M. Peters Co., which is based in Newport Beach and holds 2,000 prime lots in Orange, Los Angeles and San Diego counties, seems particularly galling.

If the deal goes through as now proposed, Capital Pacific Homes Inc., which is barely a year old, will acquire J.M. Peters for $106.4 million. That works out to about $100 million less than what J.M. Peters owes on its property--a difference that ultimately will be paid for by taxpayers.

The deal is being put together by the Resolution Trust Corp., the beleaguered federal agency that is trying to recoup what it can out of the numerous failed savings and loans that were backed by the federal government. As proposed, the deal would rid the RTC of a company acquired after the demise of San Jacinto Savings in Houston.

That firm had purchased J.M. Peters Co. in 1985 from founder James M. Peters for about $20 million. San Jacinto subsequently was declared insolvent and seized by federal regulators about two years ago, primarily because of soured real estate deals in Texas.

In assuming control of San Jacinto, regulators found that J.M. Peters was one of its most valuable assets. But in the ensuing two years, as the Southern California economy has gone into a tailspin, the value of those assets has declined. Meanwhile, J.M. Peters still owes San Jacinto $144.8 million in principal and interest for properties and improvements.

Under the RTC agreement, a total of $97.6 million in loans to J.M. Peters would be forgiven, in addition to other favorable terms. That means that Capital Pacific would end up paying an average $53,200 per lot--or $36,880 less than what some real estate experts estimate the average value to be.

Indeed, Capital Pacific’s broker already is offering to sell certain blocks of lots for as much as $100,000 apiece, pending approval of the final agreement with the RTC.

As it is, however, the deal with Capital Pacific may be the best that the RTC can do. Already, two deals have fallen through for the purchase of J.M. Peters, which once was considered the premier builder of luxury homes in Southern California.

It’s costly for the federal government to hang onto a huge asset such as this. But, at the same time, it’s frustrating public policy that taxpayers will have to end up footing so much of the bill.