4/6/2007: E1: Clem Carinalli, involved in a legal battle with the family of his associate. 11/29/2006: E1: Clem Carinalli10/18/2005: A1: Clem CarinalliPC: Clem Carinalli of North Bay Corp., one of three businessmen who sold 273 acres in Rohnert Park to Station Casinos of Las Vegas and the Federated Indians of Graton Rancheria. (2002 photo)

Carinalli hit hard by cash crunch

NATHAN HALVERSON
THE PRESS DEMOCRAT

Clem Carinalli, Sonoma County?s largest individual real estate investor, has stopped paying some of his lenders and is attempting to restructure his debts.

Carinalli, a Sonoma County native who became one of its most influential deal makers, has notified some lenders that he cannot currently pay them. He is asking lenders to reduce or waive his monthly charges while he develops a plan to resume payments.

He has hired a prominent Roseville firm that specializes in helping companies and wealthy individuals negotiate with lenders to reduce loan payments and avoid bankruptcy court.

?I expect all my lenders to be paid back,? Carinalli said in a brief phone interview Monday.

His financial woes are the latest indication that the credit crisis and real estate meltdown continue to shake the core of the county?s economy during one of the most severe downturns since the Great Depression.

Carinalli, 63, rose from his modest upbringing on a dairy farm on the outskirts of Santa Rosa to become one of the most connected businessmen in the county.

The portion of his real estate empire owned under his name with his wife, Ann Marie, was valued at $65 million last year by county tax officials. It excludes property owned by Carinalli under other names, including businesses and partnerships.

His holdings are scattered across the county, encompassing ranchland, vineyards, subdivisions and downtown buildings. He is both a developer and a lender to people trying to build up their own real estate holdings.

Details of the proposed restructuring plan are being presented to his creditors this month, said Steve Huntley, a partner in Huntley, Mullaney, Spargo & Sullivan, a debt restructuring firm that is representing Carinalli in the talks.

Working directly with investors to restructure loans is an alternative to declaring bankruptcy and helps a borrower retain as much of his wealth as possible, Huntley said. It is cheaper and quicker than getting bogged down in court, said Huntley, whose firm has advised Sears, Blockbuster, Delco Homes and many other well-known companies.

?You do all the same things,? he said. ?But the costs associated with a bankruptcy are so much more.?

How deeply Carinalli?s financial misfortunes affect the larger community is difficult to determine. Huntley and Carinalli declined to discuss how much debt will be renegotiated or how many creditors are affected.

Carinalli and his family are deeply ingrained in the economic and social scene of Sonoma County.

He co-founded Sonoma National Bank in 1985 and is a partner in North Bay Corp., which controls most of the garbage business in Sonoma County.

His family has donated large sums of money to nonprofits, such as the Santa Rosa Junior College Foundation. The reading room at the new SRJC library is named for him and his wife.

Together with North Bay Corp. partners Dennis Hunter and James Ratto, he formed an investment group that acquired farmland outside Rohnert Park for $11.4 million and sold almost all of it in 2005 for $100 million to a Graton Indian tribe seeking to build a casino.

He loaned millions to Santa Rosa developer Raj Gulati, who left behind a mountain of debt when he died of a heart attack in 2006 at age 39.

In the business world, many aspiring and established real estate developers, winery owners and other entrepreneurs turn to Carinalli for his expertise and access to funding.

?He?s sought out as a real estate investor and consul,? said Al Coppin, owner of Keegan & Coppin, the area?s largest commercial real estate broker. ?He?s a very smart real estate person.?

Money problems

In a letter sent to creditors, Carinalli said he no longer can make scheduled interest payments on some loans. A large number of real estate loans made by Carinalli have gone bad, he said in the letter. As a result, he no longer has enough cash coming in to make payments and is stuck with property he cannot currently sell, he told creditors.

Between 2004 and 2008, Carinalli made 138 loans totaling more than $70 million, securing deeds to his borrowers? properties as collateral, according to county records.

Much like a bank, Carinalli told investors, he has suffered as borrowers stop making payments to him and default on their loans. He has had to repossess properties as a result but is finding it difficult to sell the holdings, he told investors.

Carinalli hopes to ?weather the storm? by asking some lenders to temporarily reduce his monthly interest payments until the economy improves, Huntley said.

?He?ll need some additional time,? Huntley said. ?If everyone is willing to work with him, I believe we will be able to do so.?

Carinalli continues to make regular payments to some creditors, Huntley said. He is attempting to restructure debt payments on projects that are not generating enough cash to pay his lenders, Huntley said.

?Some loans that were made are fine the way they are. Other loans need to be modified given the new market conditions,? Huntley said. ?So far, people and financial institutions have showed a desire to work with us.?

For example, Carinalli said he continues to make payments on two loans issued in October from Exchange Bank totaling about $3.5 million.

?Exchange Bank is getting paid,? he said. ?That is not a concern.?

Exchange Bank did not dispute his description but declined to discuss details of its relationship with Carinalli.

Carinalli answered only a few questions during the phone interview, declining a request for a formal interview.

The economic nosedive has created problems for other real estate investors, as vacancy rates have increased on commercial properties and foreclosures continue in the residential market.

Huntley said his firm has helped wealthy individuals and corporations restructure about $1 billion in loans during the last 18 months.

?The demand is definitely up,? he said.

When the economy tanks, real estate investors often have to sell some of their properties, Coppin said.

?You can invest too much and then you need to sell to recapitalize,? said Coppin, who considers Carinalli a friend and client. ?It?s kind of like what the banks have had to do. That is part of the cycle.?

A real estate empire

Carinalli?s real estate holdings, long among the most valuable in the county, grew rapidly in recent years.

Between 2004 and 2008, the value of Sonoma County property owned in his and his wife?s names grew by 50 percent, according to county tax records.

During that five-year period, Carinalli co-signed for more than $100 million in loans from banks and individuals, according to county real estate records. Some of that money has been paid back, county records show.

Neither Carinalli nor Huntley would divulge how many creditors had been sent letters notifying them of his problems.

At the end of 2008, he and his wife owned property in their names valued at $65 million on county tax rolls. The couple was the ninth-largest source of property tax revenues for by the county and first among individuals. Only large institutions, such as The Geysers Power Co., Agilent Technologies and Cisco Systems, paid more in property taxes last year.

Determining Carinalli?s exact worth is difficult. He owns and is partners in many businesses and limited liability partnerships. Also, many real estate properties are owned in part in his children?s names, such as the downtown property that houses the Santa Rosa Chamber of Commerce.

The tax-assessed value of property is not always a good indicator of its market value. By law, the county can only increase its assessment by 2 percent annually. Conversely, the county does not immediately lower its assessments when market prices fall.

Good for investors?

Carinalli?s decision to temporarily stop paying investors might be in their best interest, said Tom Anderson, founder and president of Pensco Trust Co. in San Francisco.

Anderson?s company manages $3 billion of IRA investments for its clients, much of it in commercial real estate and rental properties. It invested money with Carinalli at the request a client, he said.

He expects some developers will continue struggling and will miss their interest payments as the recession drives up foreclosures, empties offices and storefronts, and forces businesses into bankruptcy.

?We?ve started seeing more of it,? Anderson said. ?I don?t think the full impact has been felt yet.?

Still, if developers are able to maintain their real estate empires and avoid bankruptcy by skipping some interest payments, then maybe they will regain their financial footing when the economy improves and be a good position to repay investors, Anderson said.

?You can?t get blood from a stone,? he said. ?So it?s probably a smart thing for investors.?

Carinalli?s goal is to develop a restructuring plan that fully pays off lenders and investors, Huntley said.

?Clem has a strong desire to repay everybody back in full,? Huntley said.

News Researcher Michele Van Hoeck contributed to this story. You can reach Staff Writer Nathan Halverson at 521-5494 or nathan.halverson@

pressdemocrat.com.

UPDATED: Please read and follow our commenting policy:
  • This is a family newspaper, please use a kind and respectful tone.
  • No profanity, hate speech or personal attacks. No off-topic remarks.
  • No disinformation about current events.
  • We will remove any comments — or commenters — that do not follow this commenting policy.
Send a letter to the editor