Ripple effect from developer Carinalli's financial woes
Over nearly two decades, Clem Carinalli positioned himself as a central deal maker in an intricate web of money flowing through Sonoma County?s real estate community.
He was both investor and developer, buying so much property he became the largest individual land owner in Sonoma County and fueling developments ranging from wineries and vineyards to strip malls and subdivisions.
So pervasive is Carinalli?s influence that when he confirmed last week that he could no longer pay some of his lenders, it raised lingering questions about how his financial troubles would ripple through the larger community.
An examination of public records reveals ties between Carinalli and some of the most recognizable names in Sonoma County real estate investment ? Jim Keegan, Harry Polley, David Madsen, James Madison ? as well as others well known in various fields: vintner John Balleto, urologist James Palleschi and retired dentist Robert Oliver.
Land records also reveal a lending pattern that began a dramatic shift in 2008.
After five straight years of lending an annual average of $14.2 million to land buyers and aspiring developers, Carinalli has not made a single real estate-backed loan this year.
Even as Carinalli started ratcheting down this lending in 2008, he began borrowing heavily from individuals. Most are reluctant to talk about their investments with Carinalli, and the records do not show how far he has fallen behind and to which investors.
Carinalli declined comment Friday on his financial difficulties and how his creditors have been affected. Earlier in the week, he said he intended to pay them all back.
He has hired a Roseville-based law firm that specializes in working with companies to restructure debt ? an alternative to seeking bankruptcy protection.
Carinalli?s bustling real estate empire began staggering as the economy went into a tailspin in 2008, according to land records. By this spring, he had stopped paying some of his creditors, telling them he needs time to restructure his business and asking them to accept less money.
His financial difficulties appear to have begun at the same time as the calamitous downturn in home values and commercial real estate.
Some of those who are not receiving payments from Carinalli say it has left them with less cash and wondering how their investments will fare as the restructuring unfolds.
?There?s a certain amount of effect on me for sure,? said Robert Barbieri, founder of Redwood Coast Petroleum in Santa Rosa, which he sold in November to retire. ?We?re all kind of waiting to see what he comes up with on his restructuring plan.?
Barbieri said he has been investing with Carinalli for about 20 years, receiving 8 percent to 12 percent on his loans.
?It?s a way for a person like myself to invest in the market and get a return on my money,? he said.
The money he recently loaned Carinalli was invested in vacant land in Lake County with plans to develop it, but then the real estate market collapsed and the deal died, he said.
?It?s plain dirt. There is no income off it at all,? Barbieri said.
Until last year, Carinalli had relied heavily on bank loans backed by his property holdings. At the end of 2008, Carinalli and his wife owned about 300 parcels in their names valued at $65 million on the tax rolls.
But banks, which have been devastated by land deals gone awry, have become leery of loaning more money to developers.
While he has continued to raise money from some banks, including a pair of loans totaling $3.6 million in October from Exchange Bank, public records show he has turned to private lenders to infuse his business with cash.
Carinalli has borrowed more real-estate secured loans from private lenders in the past six months than he did in all of 2007, 2006, 2005 and 2004 combined, according to county records that show loans where he mortgaged his property.
Two prominent Sonoma County Realtors, David Madsen and Harry Polley, loaned Carinalli and his associates more than $1 million this year and added an extra document to protect themselves in the event of a Carinalli bankruptcy.
Calls made to Madsen and Polley were not returned.
One of Carinalli?s associates on the loans is John Balletto, owner of Balletto Vineyards and Winery in Sebastopol and one of the largest vegetable growers north of the Golden Gate.
Public documents do not show if Carinalli continues to make payments on loans co-signed by others, such as Balletto, who did not return a phone call requesting comment.
Carinalli has taken out additional loans from local banks over the past year ? Exchange, North Valley, North Coast and Savings Bank of Mendocino.
He borrowed $3.6 million from Exchange Bank in October in return for a deed of trust on two of his commercial properties in Santa Rosa, including the building on Mendocino Avenue that houses Community Market, The Last Record Store and Govinda?s Restaurant.
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