If not by water, then by land.

That’s the emerging strategy at Cadiz Inc., the Los Angeles-based company that has long tried to capitalize on the massive water aquifer underneath its desert land holdings.

Nearly four years after the Metropolitan Water District of Southern California bowed to environmental opposition and scuttled a water storage and transfer deal that would have netted Cadiz $150 million over 30 years, Cadiz is considering a different way to develop portions of its 45,000 acres in the middle of the Mojave Desert. The firm hopes to develop the land and cash in on a real estate bonanza that has transformed other desert locations in recent years.

“Various parties have talked to us about development opportunities and we’re seriously looking at those opportunities,” said Cadiz chairman, president and chief executive Keith Brackpool.

However, that realistically could be put off because of the current downturn in real estate.

The politically well-connected and British-born entrepreneur who founded Cadiz 23 years ago as a land and water resources company, Brackpool said the time appears right to look at developing its holdings, most of which were assembled in the 1980s.

What kind of development residential, commercial or industrial is unclear, but Brackpool noted the many distribution centers in that area.

“Look at where the Coachella Valley and the desert portions of Riverside County were 10 or 20 years ago and how much development has taken place since then,” Brackpool said. “We are one of the largest landholders in the Mojave Desert, which is right now in the midst of land development boom, with major distribution and logistics centers springing up all over the place.”

The news that Cadiz was considering developing its extensive Mojave Desert holdings was greeted with cheer on Wall Street, as was the simultaneous announcement that the company had secured an agreement with Peloton Partners LLP to provide the company with a $36 million line of credit to replace a previous $26 million credit facility with ING Capital LLC.

The company’s thinly traded stock jumped 25 percent in July to $20 a share. It has hovered around that level since, despite the company reporting a loss of $5.4 million on only $409,000 in revenues for the first six months of 2006. Those figures represent an improvement from the first six months of 2005, when the loss reached $14.2 million on revenues of $30,000.

The losses stem from the carrying costs of the land and the expense involved in trying to push other water deals through the regulatory process. At one time, the company did have a revenue stream from a farming subsidiary, but that unit ultimately went bankrupt and Cadiz sold it. The remaining farmland owned by Cadiz produces meager revenues.

As a result, the company has become increasingly dependent on lines of credit to sustain it until revenue can be generated through land sales or water storage deals.

Water storage


Brackpool said Cadiz isn’t abandoning its water development plans. He said the company was working on an arrangement with the County of San Bernardino that would involve water storage and that an announcement of details of the plan would be coming in the next few months.

“California needs more water storage and we have the ability to provide that,” he said.

Whether this plan can overcome the environmental opposition that stalled the previous effort with the Metropolitan Water District remains to be seen. Environmental groups fought against that proposal because it would have allowed Cadiz to draw down the aquifer in times of short water supplies, potentially harming the ecological balance in the area.

After the water district board denied Cadiz’ proposal, the company filed a lawsuit against the agency, which is still pending.

Earlier this year, Cadiz made an indirect attempt to break the logjam on that water district proposal. Press reports surfaced that Los Angeles Mayor Antonio Villaraigosa was pushing to have former state Assemblyman Richard Katz installed as the water district’s chief executive. Brackpool, long a prodigious political donor to state and local officials, had contributed more than $50,000 to Villaraigosa during his two mayoral campaigns and environmental groups speculated that in return for Villaraigosa’s support, Katz would move to reopen consideration of the Cadiz proposal.

Katz’ bid never gained sufficient traction with the water district board, which instead chose the agency’s own general counsel, Jeff Kightlinger, as its new chief.

With hopes for a water storage and transfer deal with the water district quashed for the near future, Cadiz executives are now considering a different strategy for their desert land. But as with the water deal, Cadiz will likely face a host of hurdles to develop its holdings, not the least of which is the area’s remote location about 25 miles east of the Twentynine Palms Marine Corps base and 10 miles south of Interstate 40 a good distance from Palm Springs and the bustling Coachella Valley, where much of the recent desert development has taken place.

“It’s remote with a capital ‘R'” said Larry Kosmont, an economic development and entitlement consultant who was also on the Metropolitan Water District board when the Cadiz water proposal first came to that body.

Nonetheless, Kosmont said Cadiz was making a solid strategic move in considering development of its holdings, one that should boost its assets. “Ultimately, there is no corner of California that will be immune from subdivision and development, unless it is set off limits by law,” he said.

Indeed, Kosmont said he was surprised that such a major landholder like Cadiz had not previously considered developing its land beyond the 10,000 acres already set aside for agriculture. (A 16-acre farm has been operating there for several years.)

The longer Cadiz waits, he said, the tougher it will be to develop as more and more environmental restrictions are imposed in the region. “Things never get easier from a political standpoint if you’re seeking to develop large tracts of land like this,” he said.

The most logical course for development would be to master plan the property as Tejon Ranch Co. has done for its holdings in northern Los Angeles and southern Kern counties and subdivide it into parcels for different uses, with development phased in over several decades.

Kosmont said such a strategy would have the added benefit of providing a long-term boost to the company’s stock price.

Brackpool would not elaborate on the company’s development strategy, except to say that it would be a long process and that actual development was years away.

In the meantime, Cadiz has had to deal with another short-term crisis of much smaller proportions. Because of a recently adopted New York Stock Exchange rule barring directors from serving on more than three board audit committees of any public company, Cadiz board member Murray Hutchinson, resigned from the board’s audit committee in July.

That left the company short of satisfying Nasdaq’s requirement to have three members on the board audit committee, prompting the company to file a notice to that effect with the Securities and Exchange Commission. Under Nasdaq rules, the company has up to one year to fill that vacancy or it is delisted from the exchange.

Brackpool said the company expected to name a replacement to the audit committee well before that deadline.