Wachovia Bank has foreclosed on the 1,700-plus acre Kyle Canyon development in Nevada that was a community collaboration of nine builders and has recently reacquired the property at auction on behalf of creditors.
Meantime, the bank filed a lawsuit in mid October seeking $358 million from the builder partners, Focus Property Group, Toll Brothers, Lennar, Pulte, KB Home, Kimball Hill Homes, Woodside Group, Meritage Homes, and The Ryland Group. It was unclear at time of publication whether the bank believed the debt associated with the suit would be recourse to the builders, none of which would comment on the suit.
The foreclosure and reacquisiton were publicly disclosed by John Ritter, CEO of Focus Property Group, at a real estate conference last week in Las Vegas, as reported by the Las Vegas Sun. The paper reported he said that after foreclosing, Wachovia reacquired the land at auction on Sept. 23, 2008, under the name Kyle Acquisition Group, which is made up of 41 lenders. The paper also reported Ritter as saying his company has paid off its portion of the debt and that he hopes a deal is done. Focus Group held a 23% stake in the development, the largest of all involved. Ritter could not be reached for comment.
Brian Walsh, vice president of land development with Winchester Carlisle Real Estate Partners, a member of the acquisition group, said the group is "trying to sort out" plans for the site.
The original collaboration of builders purchased the property, where more than 16,000 homes were to be built, in Feb. 2005 for $510 million through a Bureau of Land Management auction. An initial amount of $490 million in certain senior secured facilities was arranged with the group and Wachovia, with the group entering into the credit agreement on June 20, 2005. On Nov. 8, 2006, the group upped the amount with Wachovia to $565 million.
To date, no development has taken place on the land, which led Wachovia to file the lawsuit on Oct. 10 against the builders to recover completion guaranties including "requirements to complete certain real estate improvements, and pay certain financial obligations, related to defaulted real estate acquisition and development loans," according to state court documents. "Defendants' liability upon their completion guarantees has been triggered by the builders' defaults in payment and performance under the credit agreement."
In documents filed in U.S. District Court in New York, Wachovia called for more than $358 million in payments. Wachovia listed all builder companies in the lawsuit, minus Kimball Hill and Woodside, as they both filed for bankruptcy earlier this year.
"We wrote our equity off two quarters ago on it," said David Fristoe, senior vice president, controller and chief accounting officer of The Ryland Group, during the company's third-quarter earnings call. "The bank's going after the completion guarantee. You kind of need to read something on that to see what the magnitude of that is, but you've got to remember, we've only got 3.3% of that project. I think the bank asked for $365 million or something, so at worst it's a $10 million issue, but we don't think it's that much. So we can't comment on it."
Aside from Focus, ownership positions in Kyle Canyon broke down: Coleman-Toll Limited Partnership, 15%; Lennar Nevada, 13.19%; PN II, 12%; KB Nevada, 10.24%; Kimball Nevada, 9.59%; Alameda, 9.59%; and MTH Nevada, 4.09%.
Bird Anderson, senior vice president of Wachovia home builder banking group, said he could not comment on the suit. KB Home representatives declined to comment, and other of the listed Nevada project builders did not return calls.