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April 25, 2017

Digital First Media’s Real Price for Southern California Papers: A Paltry $16 Million

After besting Tribune Publishing to win the Orange County Register and (Riverside) Press-Enterprise out of bankruptcy (“It’s official: Digital First Media defeats Tribune in bid for southern California newspapers”), Digital First Media has flipped the real estate that was included in the transaction. And O.C. speculators would be proud of the deal.

On Monday, the Orange County Business Journal revealed that DFM had sold the 14.3 acres surrounding the daily newspaper’s operations at 625 N. Grand Ave. in Santa Ana to developer Mike Harrah. The price: $34 million.

Net it out, and consider that DFM paid only $15.8 million for the two newspaper titles, matching my estimate of their value in February. While there’s a certain logic to that low, low price – earnings at the combined operations have been just above or below zero – it’s still an astounding number for two papers with significant circulations. The Register sells 228,000 papers on Sunday; Riverside sells 111,000.

It’s even more astoundingly low when you consider all of the Sturm und Drang over the newspapers these last couple of years.

 

First published at Politico Media

Follow Newsonomics on Twitter @kdoctor

 

The eyeballs stayed fixated on the papers when Freedom declared bankruptcy and Tribune Publishing CEO Jack Griffin made such a priority of buying the two papers that he had to complete a last-minute deal with a Chicago entrepreneur to amass the cash to take to bankruptcy court. That deal cost Griffin his job – and precipitated a massive executive turnover– within weeks of being signed. Then, in short order, Tribune emerged as the high bidder for the two papers and real estate, but the Department of Justice’s Antitrust stepped in – and stopped the sale to Tribune. Private equity-owned Digital First Media positioned itself perfectly as the second bidder, finally winning the properties for $5 million less than Tribune had offered to pay.

And all of this turns out to have been for two regional print newspapers worth a little more than $15 million, apart from the real estate.

In fact, with the low value of the newspapers themselves, much of the pre-auction maneuvering had focused on that 14 acres of dirt. Buyer Mike Harrah has been well described by the L.A. Times: “Some real estate developers like to avoid calling attention to themselves. Mike Harrah isn’t one of them. He stands 6 foot 6, weighs about 275 pounds and sports a signature ZZ Top beard.

“He’s flown his own Cobra attack helicopter in stunts for Hollywood movies and boasts on his website about ‘driving his dragsters at 240 miles per hour.’

“A YouTube video shows him in wrap-around sunglasses riding at breakneck speed in a personal watercraft, gray beard ruffling in the wind — all set to a heavy metal soundtrack.”

Harrah had been best positioned for this real estate – which he intends to develop into the familiar mix of uses: housing, retail and a hotel.

Two years ago, he’d bought the Register’s five-story headquarters for $24 million. While Freedom management tried to sell Harrah the remaining adjacent real estate – and pay off its many debts, pre-bankruptcy – local zoning tightened up, and no deal could be reached.

One would-be buyer, who toured the properties, had told me confidentially that Harrah was the only eventual real estate buyer. Why? The property Harrah bought in 2014 and the property he bought Monday were nearly inextricably intertwined, in their “borders.” That would have made use of the just-acquired property more difficult for a buyer other than Harrah.

As the auction date arrived, would-be developers trash-talked down the “real” value of the real estate. In the end, Harrah gets the land for a little less than it had been valued at a couple of years ago.

The sale also means the Register is likely to abandon the building that long served as its well-known HQ, as Orange County grew and grew and grew, from a Disney-fed series of podunk towns (“The train for Anaheim, Azusa and Cucamonga will be delayed,” in one of the most famous lines from comedian Jack Benny’s show) into a major metro area.

 

There’s the Fourth Estate, and there’s real estate. One’s always been ascendant in Orange County – and now most of the country.

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