Long Beach developer IDM goes into chapter 11.

The latest victim of the Southland property plummet, big Long Beach-based real estate developer and syndicator IDM Corp. quietly declared Chapter 11 bankruptcy July 10, along with 18 of the 91 partnerships formed under it wings. Additionally, six other IDM-related entities declared Chapter 11.

For the Southern California financial community, the IDM Corp. bankruptcy declaration is a double-shocker: The 91 partnerships were sold only in California, to about 15,000 investors who are concentrated in the southern half of the state -- and all 91 partnerships are invested in Southland property, either as buyers or lenders.

The partnerships ceased making scheduled distributions (similar to dividend or interest payments) a year ago.

IDM officials were not available for comment last week. A company spokesman blamed uncertain property values and the recession for the bankruptcy declaration.

"Properties are so discounted today it's hard to tell what they are worth. The way to determine the value of property is to see what it closes for in escrow," said Jim McMillan, spokesman for IDM.

In a prepared statement, IDM said negotiations with creditors had reached an impasse. "(S)ome of the pending negotiations have been stalled. To affect (sic) progress on those transactions, the company felt they needed an impartial arbitrator that would look at their properties with consideration for today's real estate environment."

IDM has been dickering with a partnership formed by New York-based GE Capital and the Bass brothers of Texas. The GE/Bass team bought mortgages on five IDM buildings from the federal Resolution Trust Corp. and has begun foreclosure proceedings on all of them. (In a foreclosure, a lender takes a property back from a borrower for non-payment on a loan).

IDM's bankruptcy declaration forestalls any foreclosure actions, and throws the ball into the hands of a U.S. Bankruptcy Court judge, who will determine disposition of IDM's assets.

Now IDM will propose a reorganization plan to the judge.

Ironically, one IDM-watcher said heavy RTC property sales helped cause the IDM troubles (the RTC has been selling property previously owned by failed savings and loans).

"The RTC is dumping commercial and (residential) rental property on the market at 30 percent of replacement cost," said Jerry Duhovic, officer at the Tustin-based brokerage Titan Value Equities, a major seller of the IDM partnerships. "In order to stay competitive, you have to lower rents."

Despite the fact that IDM Corp. is based in Long Beach the bankruptcy papers -- described by lawyers as voluminous enough to fill 12 large boxes -- were filed in Santa Barbara, and press releases were sent only to reporters who made inquiries. McMillan said company lawyers chose the Santa Barbara location because the Los Angeles bankruptcy court is backlogged.

Lawyer David Neale, of the bankruptcy specialists Levene & Eisenberg in Century City, has been retained to represent IDM on the 18 partnerships in bankruptcy court.

There have been signs of brewing problems at IDM for quite some time. For example, in April 1991, IDM filed papers with the Securities and Exchange Commission revealing that Big 6 accounting firm KPMG Peat Marwick had been terminated as the accountant for several partnerships, due to "a disagreement between Peat Marwick and IDM with regards to approach and methodology in the determination of the value of real estate properties during a recession. . . ."

Irvine-based CPA firm Saddington Cacciamatta replaced Peat Marwick, but the new firm signs off on partnership documents with the words, "we do not express an opinion on the financial statements. . . ."

In the 1970s and 1980s, IDM sold limited partnerships that invested in Southland office buildings, apartments and industrial facilities, or which purchased mortgages on such properties. According to an IDM statement released last week, about 40 percent of the properties are in Long Beach.

Such partnerships offer units, which are akin to stock in a publicly held company, to investors.

As long as rents held, partnership properties could honor mortgages. But with gluts of office space, and emerging softness in residential and industrial rents, many properties can't keep the debt wolves from the door.

Even those investors in the 73 IDM partnerships that have not declared bankruptcy face major obstacles in getting all of their money back, let alone in making a profit.

As is typical with real estate limited partnership syndicators, IDM generally took between 10 and 15 cents of each investor dollar in upfront fees and commissions. Additionally, brokerage houses that sold the IDM partnerships to investors generally charged a 5 percent commission.

Thus, investors are down to 80 cents on the dollar before they get to the chute. Partnership property must appreciate by 25 percent just to bring investors back to the starting line.

However, Southland property has not been appreciating, but depreciating, as the state's worst recession since the Great Depression grips the regional economy.

"The values of commercial buildings are off 25 to 35 percent from 1987-1988, while residential buildings are off about 20 percent, and industrial properties maybe 10 percent," said Bruce Ballenger, formerly a partner at CPA firm Coopers & Lybrand and founder of West Los Angeles-based Ballenger Associates, a reorganization consulting firm. "A rebound is still two to three years away."

Holding on for the duration was IDM's expressed intent last week. "One major goal of the IDM plan is to hold properties until real estate values increase. The company's major concern is erosion of investor capital and the possible losses that might occur from a forced liquidation."