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Economic hammer pounds developers
By MICHAEL SASSO
Tampa Tribune
Published: Oct 9, 2009

 
Gateway Centre and the surrounding land changd hands after it was foreclosed upon.  Staff photo by KATHY MOORE
 

Tampa - Long vilified as greedy power brokers, many of the people in the business of turning open spaces into malls and subdivisions are reeling from liens, foreclosure lawsuits and bankruptcies.

The real estate collapse has thrown thousands of construction workers, real estate agents and mortgage brokers out of work. But Tampa apartment developer Don Phillips, who's facing his own foreclosure suits, says shock waves hit those who make the deals, too.

Long term, when the real estate market begins to rebound, it's not clear how many developers will remain or what clout they will retain in the halls of power at the state Capitol and county commission chambers.

"Has their influence diminished? I don't think so," said Lesley Blackner, a critic of developers and head of the statewide Hometown Democracy effort, which seeks to restrict how developers can change local land-use plans.

Phillips, who was a regional co-chairman for John McCain's presidential bid and a regular contributor to Republican campaigns, advises the critics to be careful what they wish for. As long as economic troubles dog people like him, he insists, they dog the community at large.

One business segment feeling no pain from the recession is attorneys for developers who are in federal bankruptcy cases and "workout" negotiations with lenders.

John Anthony, a Tampa bankruptcy lawyer, says he represents at least 100 real estate projects in bankruptcy or other distress. Lawyer Harley Riedel estimates that his firm, Stichter Riedel, has scores of real estate clients in trouble.

Lawyers should remain busy. The real estate research firm Real Capital Analytics identifies at least 19 unfinished commercial development projects in default, foreclosure or distress in the Bay area. They are valued at $645 million, the company estimates.

Generally, developers buy land, install the infrastructure and hire builders. Often, though, companies do the developing and building, particularly in commercial real estate. Developers and builders alike are struggling.

Developers sometimes can protect their personal assets from their business troubles. But in most cases they can't hide, lawyers and bankers say. They usually are required to personally guarantee loans, said Charles Britton, until recently the West Florida market president for M&I Bank.

"The vast majority of them have taken tremendous financial hits," Britton said. "I know builders who were multimillionaires five years ago and are broke today."

Among the prominent names with troubles:

Grady Pridgen. Known for his interstate billboard touting "Not Just Another Pretty Place," Pridgen has faced multiple foreclosure lawsuits on office and industrial properties in Pinellas and Pasco counties.

In one case, Capmark Bank foreclosed on $25 million in loans to Pridgen-controlled entities. Pinellas County businessman Hardy Huntley, owner of the Wagon Wheel Flea Market, bought out Capmark's claim to the loans and took control of 190 acres of undeveloped land in the Gateway Business Centre securing the loans.

Pridgen has also faced a $6.9 million foreclosure suit brought by Mercantile Bank involving the Largo Intercoastal Marina and other properties, according to Pinellas County court records.

Paradise Development Group. A developer of shopping centers, this firm headed by Michael Connor - which touts 47 completed Publix centers - recently handed back seven projects in Florida to creditors.

Kearney Construction Co. This 53-year-old firm filed for Chapter 11 bankruptcy protection in August after it was hit with a trifecta of pain. One lender threatened to seize its work trucks, a bank pulled a line of credit and Kearney's surety bond provider severed its relationship with the company.

Headed by Bing Kearney, a Republican fundraiser, Kearney Construction did early site work on International Plaza, Westfield Citrus Park and the future Cypress Creek Town Center near Wesley Chapel.

Hardest hit by the real estate crisis have been residential subdivision developers and homebuilders. Membership in the Tampa Bay Builders Association tells the story: In 2006, the group bulged with 1,800 members. Today, it's down to 1,000, said Jennifer Doerfel, executive vice president of the association.

Among all workers, the Bay area's construction industry has shed more than 30,000 jobs since 2006. It counted 94,500 jobs three years ago, and now it employs 63,700 people today, according to state figures.

ROOTS OF THE COLLAPSE

There is general agreement that the real estate bust is what walloped developers. On the details, developers and bankers disagree.

To Phillips, 43, much of the blame lies with the way banks called in loans and cut corporate lines of credit in the wake of last year's credit crisis. They did this despite taking billions in federal bailout money, he said.

Phillips is facing foreclosure lawsuits from two banks on apartment projects in Florida and North Carolina. His firm, Phillips Development & Realty, was to build a 292-unit apartment complex on Falkenburg Road near Brandon and another apartment complex in North Carolina.

Phillips had received $8.5 million in loans from SunTrust Bank and bought property for the two projects when the bank dropped a bomb, he said. After months of reassuring him the bank would come through with $39 million more to build the two complexes, SunTrust backed out, he said.

Phillips said he expects to receive replacement funding for the projects from the U.S. Department of Housing and Urban Development. Meanwhile, Phillips' staff has shrunk from 31 people to 11.

"If you don't have a solution that involves something other than a commercial bank, you're on your way out of business," he said.

Phillips has sued SunTrust over its withdrawal of funding. SunTrust has countersued and is seeking to foreclose on the apartment projects and additional commercial land in North Carolina.

Bankers see things differently. To Britton, the former M&I banker, the blame lies partly in the way the financial risk of the housing market was shifted from large subdivision developers to smaller homebuilders.

In the past, a developer planning a housing subdivision would line up four or five builders. In turn, the builders would be expected to buy lots for homes a few at a time, say, six per quarter.

But in the hyperactive housing market of the mid-2000s, subdivision developers began requiring homebuilders to acquire, say, 50 lots at a time. Each lot might have cost $50,000, and they turned to banks for the capital. Sometimes, one homebuilder might have been working in six subdivisions and on the hook to purchase 300 lots - a potential cost of $15 million.

"That's a lot of money," Britton said.

When the music stopped, many homebuilders had too much debt and not enough buyers. Adding to liquidity problems, most homebuilders took much of their profit from one project and pumped it into the next.

POLITICAL IMPLICATIONS

Lobbyists and real estate lawyers say political fundraisers are more lightly attended these days, and money for campaigns is harder to come by.

By one measure, developers are showing less influence.

This year, the number of lobbyists representing the construction industry before the Legislature fell to 191, down from 238 a year earlier, according to a state lobbyist directory.

Winn Peeples, lobbyist for Palm Beach Gardens-based Kitson & Partners, which is developing a new city in Southwest Florida called Babcock Ranch, attributes the 20 percent decline to the real estate industry's troubles.

"There are companies that people used to lobby for that are no longer in business," he said.

The diminished industry may need to close ranks to take on the Hometown Democracy campaign. If an amendment to the state constitution passes in 2010, local voters would have to approve any change to a county's long-term land-use plan. Developers often seek changes in these plans to allow for denser, more-profitable construction.

Blackner, a Palm Beach land-use lawyer leading the charge to pass Hometown Democracy, acknowledges that the real estate industry may have less money for politics. But she points to a rival political action committee called Floridians for Smarter Growth, which is trying to kill Hometown Democracy.

With donations from chambers of commerce and real estate-related groups, Floridians for Smarter Growth raised about $160,000 in the three months ending Sept. 30. Blackner said Hometown Democracy hasn't filed its quarterly campaign contribution report, but she expects it to come in well short of its rival.

"I'm sure they're going to get quite a bit of funds," she said.

Reporter Michael Sasso can be reached at (813) 259-7865.

 



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