Major developer faces foreclosure or bankruptcy

Introduction

The largest private landowner in Loudoun County, Virginia, Greenvest LC — the focus of a series of bruising development battles — has defaulted on a $130 million loan, putting the majority of its real estate holdings into a foreclosure auction scheduled for Tuesday at the county courthouse.

The land developer, however, could yet block the outright foreclosure and auction of 4,123 acres, 75 percent of its Loudoun holdings, by declaring bankruptcy before the scheduled sale, according to attorneys familiar with Greenvest’s position. A Chapter 11 bankruptcy proceeding would enable Greenvest, a privately held company based in Vienna, Virginia, to have greater control over liquidation of its assets and potentially retain some of the holdings now in default.

If the foreclosure auction occurs as scheduled, several knowledgeable observers said, it is unlikely that any bidder will cover the lender’s minimum price. That would leave the property in the control of the lender, New York-based iStar Financial, which likely would then enter into private negotiations with developers or perhaps the county, which previously expressed interest in a portion of the land for schools.

A leading slow growth advocate, County Supervisor Jim Burton, an independent representing rural Western Loudoun, characterized Greenvest’s foundering as just “another chapter in the story” of development in the area. “I don’t know that they’re out of it for good,” he said, adding that, even if Greenvest loses these assets, “I hear there are investment groups trying to put together a bid. … Eventually a developer will be back to put pressure on the supervisors to rezone that area.”

Repeated calls to Greenvest and it’s principals over several days went unanswered.

The impact of the foreclosure on the county, if any, remains unclear. Loudoun County Assessor Todd Kaufman said he could not respond to questions about the foreclosure — and other county officials declined to comment — because the county had a vital interest in the outcome of the auction. That vital interest conceivably could include devaluation of county land values if the land sells well below its current market value of $165 million.

Yet, according to Jack Brown, an economist with the county who tracks foreclosures, the Greenvest sale is unlikely to significantly impact the county because the land is undeveloped. On undeveloped parcels, there are few surrounding homes to impact. In a developed community, a foreclosure can drive down the market price and assessment of neighboring properties.

“If it’s all vacant, it’s not much of a problem,” Brown said, adding that the large tracts Greenvest stands to lose “fall into the undeveloped properties category. It depends on who buys it and what the plans would be for it.”

While foreclosures in the county remained fairly steady in 2008, averaging about 190 per month for a total of 2,310, those numbers have been trending slightly lower for 2009 at about 116 per month.

Greenvest’s apparent financial collapse follows its failed attempts to rezone the 4,123 acres — about one-third the size of Dulles International Airport’s 12,000 acres — to permit construction of 15,000 homes in four separate communities. Last year, the Board of Supervisors blocked the Loudoun County Schools’ proposed $20 million purchase of 100 acres of Greenvest land. Greenvest had paid $25 million for the school site and the surrounding 375 acres, which comprise one of the four listings going to auction.

It wasn’t immediately known who, if anyone, is likely to bid on the land. William Casterline, the Blankingship & Keith attorney hired by the lender to oversee the auction, said he had received “a few calls” in response to legal notices published in the Washington Post on August 4th and 11th. He characterized several callers as curious, not serious bidders, but would not identify any of those he spoke with. He could offer no insight into why the foreclosure resulted.

“Obviously something didn’t work,” he said. “The loan went into default and that’s why I’m here.”

A leading area developer, Leonard S. “Hobie” Mitchel, said he will attend the auction but doesn’t intend to bid because, he understands, the bank is seeking 70 cents on the dollar for the property, which would yield about $91 million, and “it ain’t worth that much.”

The bank will probably end up owning the property at the end of the auction, Mitchel said, and afterward, the bank can try to negotiate with developers for a fair price.

The lender, iStar Financial, earlier this month moved forward with foreclosure on the four parcels — known locally as Madison at Broad Run Village, Madison at Arcola, Madison at Lenah and Madison at Greenfields. Court records show that Greenvest initially secured a loan for $125 million to purchase the 4,123 acres in December 2005. In March 2008, the loan was increased to just over $130 million. Representatives of iStar Financial and local lawyers representing the firm did not return phone calls seeking information.

While Loudoun County, Virginia, is one of the fastest growing counties in the country, its Board of Supervisors favors slow-growth policies. Additionally, according to county records, Greenvest has not paid more than $100,000, which was due in June, in county property taxes on the four tracts of land.

County and state records identify Ahmad Abdul-Baki as co-founder and principal officer of Greenvest. Abdul-Baki was the subject of an August 17, 2003, Washington Post article, and said at the time that his firm had the ability to wait out a struggling market.

“Our vision is long term,” he told the Post. “We’re not looking at this for tomorrow. Tomorrow is 15 or 20 years down the road. … I have the ability to sit and wait and wait and take my time. Ten years, hopefully, is the first of 50 more years of growth here.”

According to the Post story, Abdul-Baki first forayed into development in Texas in the 1980s, landing in bankruptcy after the market crashed.

“You learn from your past,” he told the Post in 2003.

Several calls to Abdul-Baki, of McLean, Virginia, who hails from a Palestinian banking family, and his business partner and co-founder of Greenvest, Jeffrey Sneider, a long-time Northern Virginia real estate developer, were not returned.

Greenvest gambled big in Loudoun early in the decade, even after running into early roadblocks, gobbling up more than 5,000 acres of land with the goal of developing a suburban community south of Dulles Airport in one of the nation’s fastest growing counties.

The developer’s problems began after the 1999 elections, in which a majority of winning candidates for the Board of Supervisors ran on slow-growth policies. The new board rejected Greenvest’s rezoning application for 447 homes on 225 acres near the county’s southern tip, called Dawson’s Corner. Greenvest sued and helped fund a pro-growth slate of candidates who swept to power in 2003.

The new majority settled that lawsuit, permitting Greenvest to construct 224 homes on the property, and agreed to consider larger plans for the 4,123 acres Greenvest purchased in 2005. Ultimately, however, even the pro-growth board rejected Greenvest’s plans.

Currently, Greenvest has just one established community in the county, known as Kirkpatrick Farms, which, according to the developer’s Web site, consists of about 1,200 homes on 405 acres.

Colin Stiles, a senior land acquisition analyst at K. Hovnanian Homes, one of the nation’s largest home builders, said he will attend the courthouse auction, but only to watch. He expects other builders will also attend without cash in their pockets.

“I think there will be a lot of people there out of curiosity,” he said. “I think it would be difficult for most national builders to step up on that much land.”

Stiles said Greenvest probably lost the land because it was unable to force through zoning changes that would have made building profitable. “I would think that all of this happened as a result of them not getting the density they wanted,” he said.

Considering the political climate in Loudoun County — the current Board of Supervisors tends toward slow-growth policies — Stiles doubts builders will buy the land knowing the zoning battles they would face. No one wants to go down the road Greenvest travelled, he said.

So Stiles said he thinks iStar will ultimately cast the highest bid for the land. “That’s what I’ve seen at a lot of these auctions,” he said. “The banks do not want to take that big of a loss.”