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Real Estate & Construction  May 21, 2010

Two subdivisions tell foreclosure tale

SEVERANCE – Bright red fire hydrants are spaced between decorative street lamps along Bridle Hill Estates’ pristine black asphalt roads that lead to … nothing.

A green and gold sign set in a brick pillar directs motorists passing on Colorado Highway 14 to the 320-acre development. Bridle Hill was annexed into the town of Severance in 2004 with the vision of becoming an equestrian community, but the five bronze horse statues loitering at the gate are the only equines to grace the property to date. It is now in the beginning stages of the foreclosure process.

Bridle Hill is one of the latest planned communities to hit the financial skids. In 2006, an investment group led by Fort Collins resident Jeff Crowley started installation of the infrastructure for 74 planned lots split between half-acre home-only estates and larger equestrian lots ranging from two and a half to five acres. The single-family lots were priced between $179,500 to $229,000.

Plans also called for about 70 duplex townhomes, an on-site horse-boarding facility, a 14,800-square-foot event center and Saddler Arena, a commercial event center that would have included up to 600 overnight stalls for horse shows and competitions.

But the vision has still not coalesced, and the ownership group is facing foreclosure. In April, Liberty Savings Bank initiated foreclosure proceedings on about 270 acres of Bridle Hill to collect $5.36 million of a note with an original balance of $7.15 million.

Crowley declined to comment for this story, citing an obligation to not discuss details at this time. He did confirm that most of the infrastructure for the development is in place, including work on the sewer/septic system.

“It was quite a process,” he said. “It was (time consuming and costly).”

In January, Crowley approached the Severance Town Board in an attempt to recoup some of the costs associated with the joint utility plan. Crowley asked for about $39,000 to cover expenses related to planning information for sewer lines – information he maintained the town should have had but did not provide. The town board declined to cover the costs. At the meeting, Town Attorney Greg Bell pointed out that the original agreement was set up so that utility needs would be provided at the cost of the developer, not the town.

“Originally when we started this project, you said that you would pay for the joint utility plan,´ said Town Administrator John Holdren, according to the minutes from the meeting. “Now you are coming to the town and wanting $40,000 from us, which kind of blindsides us.”

Holdren recently told the Business Report he wasn’t aware of the foreclosure proceedings and did not comment for this story.

Second chances possible

Bridle Hill is one of many developments in Northern Colorado that went bust along with the real estate bubble. Some projects, though, are getting a second chance thanks to some creative dealing.

The unfinished portions of the Belmont Ridge development, located off Highland Meadows Parkway east of the Budweiser Event Center in Loveland, was at risk of going into foreclosure until noteholder Home State Bank found a company to take over a big chunk of the project.

Belmont Ridge received initial approval from the town of Windsor in 2004. According to a town of Windsor building permit update from January, phases one, two and three of Belmont Ridge had permits issued for 76 of its 112 lots. Phases four and five contain a total of 178 lots for which no permits have been pulled.

“The economy went south on us,´ said Steve Fobes, senior vice president at Home State Bank. “It was one of many developments that had a problem.”

The exact nature of the problems at Belmont Ridge was not discussed by the parties involved. Calls and emails to Brenden Chenoweth, director of Belmont Ridge Development Co. and partner in related ventures, were not returned. Greg Hughes, listed as a partner on several public documents, also did not return a call for comment. Real estate broker Doug Petersen was also listed as a partner but declined to comment, saying he is no longer involved in the development.

Through a series of transactions in late March and April, the undeveloped phases were picked up by PREO Belmont Ridge LLC – an entity set up by Denver-based real estate development and investment firm the Pauls Corp.

“We invest in all real estate product types, save for hotel and retail,´ said Chris Manley, CFO for the Pauls Corp., adding that the company sticks to product types it has had success with in areas where there is sure to be job growth. “I definitely put Northern Colorado in that category.”

Dealing with troubled assets

The company set up the Pauls Real Estate Opportunities (PREO) Fund specifically to bring together investors and financial institutions to deal with troubled assets through co-investment, note purchases, asset purchases, etc. Longmont’s 121-home Clover Basin Homes development and 36-home Maxwell Place are also part of the PREO Fund.

“We’ve been looking at Northern Colorado, and were anxious to make an investment in (the region),” Manley said.

The company will unveil its plan for Belmont in the next few months, but Manley divulged that for the initial phases the Pauls Corp. will be the only builder involved. He added that the company would start the project immediately.

The deal saved the project from foreclosure. Not so lucky was a 27-acre commercial parcel located due west. The parcel was being development by Altitude LLC, an entity headed by Chenoweth. In early April, First Western Trust Bank started foreclosure proceedings to collect on a $2.5 million note originally granted by Windsor’s Signature Bank.

Home State tried something new for the bank in order to avoid a foreclosure situation.

“We chose to see if we could make the most of our problem loan,” Fobes said. “There were a lot of bottom feeders. We chose to not go that route, and time will tell (if it works).”

Fobes said this is the first time Home State has brought in a new project developer “in this form.” Without going into the minute details of the deal, which he described as one of the most complex of his banking career, Fobes explained that through senior and subordinate debt and future revenue sharing the bank hopes to recover its money over time.

“We would be happy to get our principal back,” Fobes said, adding that the bank is confident this was the best route for doing that. “It was a deal, from our standpoint, that we couldn’t pass up.”

SEVERANCE – Bright red fire hydrants are spaced between decorative street lamps along Bridle Hill Estates’ pristine black asphalt roads that lead to … nothing.

A green and gold sign set in a brick pillar directs motorists passing on Colorado Highway 14 to the 320-acre development. Bridle Hill was annexed into the town of Severance in 2004 with the vision of becoming an equestrian community, but the five bronze horse statues loitering at the gate are the only equines to grace the property to date. It is now in the beginning stages of the foreclosure process.

Bridle Hill…

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