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Developers attempt through acerb economy
One Colorado Springs developer bankrupt his appointment four months ago, hasn't been able to borrow money and expects to lose all his backdrop to foreclosure.
Another owes added than $10 actor to contractors and subcontractors who haven't been paid for plan they've done on the developer's behemothic residential, bartering and ball project.
A third developer scrambles to pay his bills and jettisoned nearly all of his employees because there was little work for them.
Colorado Springs' development community is reeling, thanks to a combination of factors: a credit crisis has made it tough to borrow money, the region's housing market is at its worst in two decades, and retailers are skittish to open new stores.
Some developers acknowledge they're fighting to survive, and industry experts predict all of them won't make it. Some developers who capitalized on the area's last real estate downturn in the late 1980s - scooping up land at discounted prices - are in danger of going under this time around.
"I think there will be both survivors and casualties from this recession," said veteran developer Steve Schuck, who lost almost everything 20 years ago and who says his company has taken a cautious approach on deals to make sure it survives.
"This (downturn) will separate the men from the boys," Schuck added. "I believe there is going to be a massive realignment in the local development industry."
Developers help shape, for better or worse, what a city looks like. While growth critics howl that developers are responsible for unsightly sprawl, developers say they respond to demand by providing places for area residents to live, work and shop and for employers to do business.
But a slumping economy means fewer jobs for home builders, construction workers, land planners and traffic engineers, among others. Construction of shopping centers, subdivisions and office complexes generates millions in sales and property tax revenue; when development slows, local governments have less money to pay for public safety, roads and other basic services. A development slowdown can mean half-finished buildings, rising numbers of commercial foreclosures and empty shopping centers and offices.
"It's definitely, by far and away, the most significant slowdown since the late ‘80s," said Scott Smith, chief operating officer of La Plata Investments, developer of Briargate on the Springs' north side.
Today's credit crunch means banks won't lend money or are requiring developers to first put more of their own money into their projects. Meanwhile, a recession has created a disastrous ripple effect for developers, said Les Gruen, who owns the Urban Strategies consulting firm in Colorado Springs. Home builders don't need new lots because fewer people are buying houses; retailers are waiting for home building to rebound before constructing stores; and industrial users aren't clamoring for warehouse space because there's reduced demand for their building-related materials.
Developer Ray O'Sullivan already has felt the effects. He closed his Realty Development Services in August and let go his staff of 16. Since then, O'Sullivan said, he's unsuccessfully sought financing to jump-start residential and commercial projects.
O'Sullivan said he's tried selling his properties, including the 6,420-acre Santa Fe Springs residential and commercial project east of the Springs in unincorporated El Paso County. But he hasn't found any takers and expects to lose everything to foreclosure.
When he came to town from California in 1990, opportunities were plentiful, O'Sullivan said. Now, "the properties I have...I cannot finance them, I cannot ‘equitize' them, I can't develop them, I can't build them. I'm going to basically lose all 20-some projects that I have," he said.
Springs developer Jannie Richardson insists she has no intention of losing her 153-acre Colorado Crossing project on the north side, which will include a 14-screen Cinemark movie theater complex, residences, stores, restaurants and offices, among other uses.
But Richardson hasn't paid more than $10 million to contractors and subcontractors who have worked on the project, according to legal actions, known as mechanic's liens, those companies have filed against her. Richardson said she's cash poor at the moment and hasn't been able to line up financing.
A trio of general contractors has walked away from Richardson's project over the past several weeks; she says she now has licensed general contractors on her staff who oversee the project. By March 1, Richardson says she'll complete the theater, a parking garage and retail space for three restaurants and a coffee shop.
At that point, she said she's confident she'll obtain a construction loan and pay her bills.
"I feel very confident I'm going to make it because I don't owe any debt on anybody (for the land)," Richardson said. "I realize I owe the liens, but I assure you I will pay them."
Developer Jim Morley also owes contractors and subcontractors on a couple of projects, but said there are good reasons he hasn't paid his bills.
For example, in 2006, Morley bought the Appletree Golf Course in Fountain, where he plans to develop higher-end homes as part of a revamped golf course project. But Columbian Bank and Trust Co., a Topeka, Kan., lender that financed the Appletree project, failed in August and was taken over by the Federal Deposit Insurance Corp.
A $1.6 million account he was drawing on to pay his golf course contractor and subcontractors was frozen by the FDIC, Morley said. As a result, he has unpaid bills totaling about $522,000, of which $380,000 are liens for golf course work, he said.
The liens remain unpaid while he sorts out his financing with the FDIC, he said.
Morley develops residential and commercial projects, but it's the housing side where he's been clobbered. His development company sold about 900 home sites to home builders in both 2005 and 2006. Last year, that number plunged to 384 lots. Through the middle of last week , Morley said, he's sold 59 lots for all of 2008 - none since early August.
His company continues to sell commercial sites to retailers, restaurants and hotels, Morley said. Each of his 17 projects is independent of the other, Morley said. That's one of the keys to survival; don't let one bad project drag down the others, he said.
He's laid off all his staff and is down to three people, which includes himself, his wife, Robin, and chief operating officer Jim Hamel. He's sharing a receptionist with two other tenants in his downtown Colorado Springs building.
When he pays bills, Morley said, he negotiates with vendors to pay part now and the rest later. He's also sold several "toys," as he calls them - an interest in a plane, a boat, a couple of cars - and put an Arizona home on the market.
"It's all about cash flow," Morley said. "You sell whatever you can and get what you can and move as much stuff. We're in the same survival mode. We will survive."
Other Springs developers say they're doing fine.
Kevin Kratt, who's building the University Village Colorado retail center that's part of a North Nevada Avenue urban renewal project, said anchor Costco Wholesale Club is scheduled to open in August, while Lowe's Home Improvement Warehouse and a Kohl's department store will open in early fall.
Ray Marshall made a splash this year when his LandCo Equity Partners joined the city and other partners to offer a $53 million incentives package to keep the headquarters of the U.S. Olympic Committee in Colorado Springs.
LandCo has launched the remodeling and expansion of a downtown building at 27 S. Tejon St., which will be transformed into a new USOC headquarters and open in July. A $167,336 lien filed against the project stems from a dispute with a suburban Denver company hired to remove asbestos from the building, Marshall said. The company wasn't paid because it made errors and another firm had to be hired, Marshall said.
LandCo is staying conservative, too. For example, the company plans to develop a 400,000-square-foot shopping center northwest of Powers Boulevard and North Carefree Circle. A couple of years ago, LandCo would have started construction when it had tenants to fill 50 percent to 60 percent of the space, Marshall said. Today, construction won't start until the center is 90 percent to 100 percent pre-leased.
Classic Cos., which started in the early 1990s as a home builder and expanded into one of the area's largest residential and commercial developers, has cut about 40 percent of its 240 employees over the last two years - "painful" steps taken by a company that also has eliminated an annual employee trip to Mexico and a Broadmoor hotel Christmas party, said Chief Executive Officer Doug Stimple.
Classic has a longtime loan agreement with a syndicate of banks headed by Texas-based Guaranty Bank.. While the loan agreement has been renewed annually, the latest renewal was for six months, with another six-month option, said Stimple and Classic Chairman Jeff Smith.
That change reflects the slowness in home-building and development, not a lack of confidence in Classic, Stimple and Smith said. In fact, Classic remains in the top 20 percent of Guaranty's customer list, unlike the other 80 percent who are in so-called "work out" situations trying to resolve problems with their loans, they said.
The company expects to continue to grab 11 percent to 12 percent of the new home market in coming years, Stimple said.
"We're here, we haven't pulled our headquarters out of here like a lot of companies have," said Stimple, referring to several national builders that have closed offices in the Springs. "This is our home. This is the only place where we build."
Chris Jenkins, a vice president of Nor'wood Development Group, which, along with Classic, is one of the city's two biggest developers, said his company recognized the housing slowdown two years ago and is prepared for the market downturn.
"Nor'wood's been in business for 30 years, and we're a conservative company and we will come out of this just fine," Jenkins said.
As should Colorado Springs, said Gruen, the development consultant.
The Springs' assets - including a desirable quality of life and an educated workforce - remain strengths for the future, especially when compared with other cities, Gruen said. But when it comes to developers, he said companies that have borrowed heavily will be the ones hurt the most.
"Those that are perhaps better funded or have been better able to prepare for what's ahead ... are going to be more likely to weather the storm," he said. "Those developers that were exceptionally highly leveraged ... are going to face challenging times."
RICH LADEN and WAYNE HEILMAN
One Colorado Springs developer bankrupt his appointment four months ago, hasn't been able to borrow money and expects to lose all his backdrop to foreclosure.
Another owes added than $10 actor to contractors and subcontractors who haven't been paid for plan they've done on the developer's behemothic residential, bartering and ball project.
A third developer scrambles to pay his bills and jettisoned nearly all of his employees because there was little work for them.
Colorado Springs' development community is reeling, thanks to a combination of factors: a credit crisis has made it tough to borrow money, the region's housing market is at its worst in two decades, and retailers are skittish to open new stores.
Some developers acknowledge they're fighting to survive, and industry experts predict all of them won't make it. Some developers who capitalized on the area's last real estate downturn in the late 1980s - scooping up land at discounted prices - are in danger of going under this time around.
"I think there will be both survivors and casualties from this recession," said veteran developer Steve Schuck, who lost almost everything 20 years ago and who says his company has taken a cautious approach on deals to make sure it survives.
"This (downturn) will separate the men from the boys," Schuck added. "I believe there is going to be a massive realignment in the local development industry."
Developers help shape, for better or worse, what a city looks like. While growth critics howl that developers are responsible for unsightly sprawl, developers say they respond to demand by providing places for area residents to live, work and shop and for employers to do business.
But a slumping economy means fewer jobs for home builders, construction workers, land planners and traffic engineers, among others. Construction of shopping centers, subdivisions and office complexes generates millions in sales and property tax revenue; when development slows, local governments have less money to pay for public safety, roads and other basic services. A development slowdown can mean half-finished buildings, rising numbers of commercial foreclosures and empty shopping centers and offices.
"It's definitely, by far and away, the most significant slowdown since the late ‘80s," said Scott Smith, chief operating officer of La Plata Investments, developer of Briargate on the Springs' north side.
Today's credit crunch means banks won't lend money or are requiring developers to first put more of their own money into their projects. Meanwhile, a recession has created a disastrous ripple effect for developers, said Les Gruen, who owns the Urban Strategies consulting firm in Colorado Springs. Home builders don't need new lots because fewer people are buying houses; retailers are waiting for home building to rebound before constructing stores; and industrial users aren't clamoring for warehouse space because there's reduced demand for their building-related materials.
Developer Ray O'Sullivan already has felt the effects. He closed his Realty Development Services in August and let go his staff of 16. Since then, O'Sullivan said, he's unsuccessfully sought financing to jump-start residential and commercial projects.
O'Sullivan said he's tried selling his properties, including the 6,420-acre Santa Fe Springs residential and commercial project east of the Springs in unincorporated El Paso County. But he hasn't found any takers and expects to lose everything to foreclosure.
When he came to town from California in 1990, opportunities were plentiful, O'Sullivan said. Now, "the properties I have...I cannot finance them, I cannot ‘equitize' them, I can't develop them, I can't build them. I'm going to basically lose all 20-some projects that I have," he said.
Springs developer Jannie Richardson insists she has no intention of losing her 153-acre Colorado Crossing project on the north side, which will include a 14-screen Cinemark movie theater complex, residences, stores, restaurants and offices, among other uses.
But Richardson hasn't paid more than $10 million to contractors and subcontractors who have worked on the project, according to legal actions, known as mechanic's liens, those companies have filed against her. Richardson said she's cash poor at the moment and hasn't been able to line up financing.
A trio of general contractors has walked away from Richardson's project over the past several weeks; she says she now has licensed general contractors on her staff who oversee the project. By March 1, Richardson says she'll complete the theater, a parking garage and retail space for three restaurants and a coffee shop.
At that point, she said she's confident she'll obtain a construction loan and pay her bills.
"I feel very confident I'm going to make it because I don't owe any debt on anybody (for the land)," Richardson said. "I realize I owe the liens, but I assure you I will pay them."
Developer Jim Morley also owes contractors and subcontractors on a couple of projects, but said there are good reasons he hasn't paid his bills.
For example, in 2006, Morley bought the Appletree Golf Course in Fountain, where he plans to develop higher-end homes as part of a revamped golf course project. But Columbian Bank and Trust Co., a Topeka, Kan., lender that financed the Appletree project, failed in August and was taken over by the Federal Deposit Insurance Corp.
A $1.6 million account he was drawing on to pay his golf course contractor and subcontractors was frozen by the FDIC, Morley said. As a result, he has unpaid bills totaling about $522,000, of which $380,000 are liens for golf course work, he said.
The liens remain unpaid while he sorts out his financing with the FDIC, he said.
Morley develops residential and commercial projects, but it's the housing side where he's been clobbered. His development company sold about 900 home sites to home builders in both 2005 and 2006. Last year, that number plunged to 384 lots. Through the middle of last week , Morley said, he's sold 59 lots for all of 2008 - none since early August.
His company continues to sell commercial sites to retailers, restaurants and hotels, Morley said. Each of his 17 projects is independent of the other, Morley said. That's one of the keys to survival; don't let one bad project drag down the others, he said.
He's laid off all his staff and is down to three people, which includes himself, his wife, Robin, and chief operating officer Jim Hamel. He's sharing a receptionist with two other tenants in his downtown Colorado Springs building.
When he pays bills, Morley said, he negotiates with vendors to pay part now and the rest later. He's also sold several "toys," as he calls them - an interest in a plane, a boat, a couple of cars - and put an Arizona home on the market.
"It's all about cash flow," Morley said. "You sell whatever you can and get what you can and move as much stuff. We're in the same survival mode. We will survive."
Other Springs developers say they're doing fine.
Kevin Kratt, who's building the University Village Colorado retail center that's part of a North Nevada Avenue urban renewal project, said anchor Costco Wholesale Club is scheduled to open in August, while Lowe's Home Improvement Warehouse and a Kohl's department store will open in early fall.
Ray Marshall made a splash this year when his LandCo Equity Partners joined the city and other partners to offer a $53 million incentives package to keep the headquarters of the U.S. Olympic Committee in Colorado Springs.
LandCo has launched the remodeling and expansion of a downtown building at 27 S. Tejon St., which will be transformed into a new USOC headquarters and open in July. A $167,336 lien filed against the project stems from a dispute with a suburban Denver company hired to remove asbestos from the building, Marshall said. The company wasn't paid because it made errors and another firm had to be hired, Marshall said.
LandCo is staying conservative, too. For example, the company plans to develop a 400,000-square-foot shopping center northwest of Powers Boulevard and North Carefree Circle. A couple of years ago, LandCo would have started construction when it had tenants to fill 50 percent to 60 percent of the space, Marshall said. Today, construction won't start until the center is 90 percent to 100 percent pre-leased.
Classic Cos., which started in the early 1990s as a home builder and expanded into one of the area's largest residential and commercial developers, has cut about 40 percent of its 240 employees over the last two years - "painful" steps taken by a company that also has eliminated an annual employee trip to Mexico and a Broadmoor hotel Christmas party, said Chief Executive Officer Doug Stimple.
Classic has a longtime loan agreement with a syndicate of banks headed by Texas-based Guaranty Bank.. While the loan agreement has been renewed annually, the latest renewal was for six months, with another six-month option, said Stimple and Classic Chairman Jeff Smith.
That change reflects the slowness in home-building and development, not a lack of confidence in Classic, Stimple and Smith said. In fact, Classic remains in the top 20 percent of Guaranty's customer list, unlike the other 80 percent who are in so-called "work out" situations trying to resolve problems with their loans, they said.
The company expects to continue to grab 11 percent to 12 percent of the new home market in coming years, Stimple said.
"We're here, we haven't pulled our headquarters out of here like a lot of companies have," said Stimple, referring to several national builders that have closed offices in the Springs. "This is our home. This is the only place where we build."
Chris Jenkins, a vice president of Nor'wood Development Group, which, along with Classic, is one of the city's two biggest developers, said his company recognized the housing slowdown two years ago and is prepared for the market downturn.
"Nor'wood's been in business for 30 years, and we're a conservative company and we will come out of this just fine," Jenkins said.
As should Colorado Springs, said Gruen, the development consultant.
The Springs' assets - including a desirable quality of life and an educated workforce - remain strengths for the future, especially when compared with other cities, Gruen said. But when it comes to developers, he said companies that have borrowed heavily will be the ones hurt the most.
"Those that are perhaps better funded or have been better able to prepare for what's ahead ... are going to be more likely to weather the storm," he said. "Those developers that were exceptionally highly leveraged ... are going to face challenging times."
RICH LADEN and WAYNE HEILMAN
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