TACOMA – The economic crisis that gobbled up fortunes across the country now has its teeth into what would be Pierce County’s largest development – at 5,000 acres and 18 years in the making.
The developer of Cascadia, a major master-planned community near Bonney Lake, filed initial Chapter 11 bankruptcy documents late Thursday. The developer needed to stop Seattle-based HomeStreet Bank from selling most of the site Friday morning in a foreclosure auction on the steps of the County-City Building in downtown Tacoma.
HomeStreet says Cascadia Project LLC, led by corporate lawyer Patrick Kuo, has defaulted on two loans totalling $72.9 million including interest and fees. One came due in February and one came due in July, according to two documents filed in July with Pierce County.
“We’re not bankrupt,” Cascadia Chief Operating Officer John Ladenburg said Friday. “The assets are worth far more than the loans outstanding to HomeStreet.”
“We expect that, like (General Motors), that four to six months from now we’ll be in good shape when we can restructure our debt,” said Ladenburg, the former Pierce County executive.
Ladenburg said the developer has spent more than $114 million on the property, and that’s on top of the value of the land. He also said that the developer has letters of intent from two nationally known corporations, whom Ladenberg would not name, to work on housing and office park projects, and that other aspects of the business will provide enough revenue to keep operating.
“We don’t expect anyone to lose any money,” he said. “We’ll continue to do business, but it’s not going to be in the next month or two.”
HomeStreet Bank spokesman Richard Bendix said Friday that the bank does not comment on client matters or litigation.
It’s too early to determine whether Cascadia’s developer will be able to emerge from bankruptcy reorganization and keep on working on the massive project.
Cascadia is designed to be the largest planned development in Washington – bigger than DuPont’s Northwest Landing, which rises on 3,000 acres, and South Hill’s Sunrise, which fills out 1,500 acres.
The development, as planned, would have nearly 6,500 homes, 626 acres of commercial space, a hotel, three golf courses and seven schools.
Kuo bought the land from the Weyerhaeuser Co. in 1991 and broke ground in 2005. Then, he estimated that the first residents and businesses would arrive in 2007.
Today, the only building there is an unnamed elementary school where students from Sumner’s Victor Falls Elementary are attending while that school is renovated. There are roads, curbs and trails, but no houses or commercial structures.
The initial documents filed Thursday evening were intended first to stop the foreclosure sale. The filings include a list of the developer’s top 20 unsecured creditors – a group of people owed money who are less likely to collect it should the developer not be able to restructure its debt.
The top spot is Cascadia Land LLC, a company controlled by the developer.
The top five are rounded out by the City of Bonney Lake, Tacoma Water, Teufel Landscape of Kent, and the Pierce County assessor/treasurer.
“It’s disappointing,” Bonney Lake Mayor Neil Johnson said Friday. “We were looking forward to Cascadia.”
The potential loss of Cascadia and its planned employment base, he said, could leave that area open to other kinds of development that could worsen the plateau’s already tenuous traffic situation.
“Change may put a lot of people onto our road,” he said, adding that Bonney Lake and Highway 410 are the only practical avenues for commuters to get off the plateau.
As for money, Johnson said Cascadia currently owes the city about $200,000 and had agreed to spend another $750,000 in mitigation on a project to redesign the intersection at Highway 410 and the Sumner-Buckley Highway.
He said the city does have money to go ahead with the intersection project.
Deputy Pierce County executive Kevin Phelps said he believes the roughly $84,000 Cascadia owes Pierce County is for property taxes. He said the amount is not enough to affect the county’s budget.
Phelps said the county has not counted on money from planning fees from Cascadia homebuilding for the last two years, and he said the county isn’t planning on any Cascadia fees for 2010.
Phelps said he knows Kuo well and believes the developer is determined to complete Cascadia. “I can’t imagine him not completing it,” Phelps said.
Kuo told the Seattle Daily Journal of Commerce that he’s determined to overcome the crisis. He said that last summer, as the housing market was cratering, builders Bennett, Centex and Shea chose not to close on the purchase of 389 improved Cascadia lots for $52 million. That was money Kuo counted on to “pay off everything.”
“We had the perfect storm,” Kuo told the paper. “All of America did.”
According to the bankruptcy filing, more schedules are due to the U.S. District Court in Seattle by Oct. 30. But even then, the details of Cascadia’s problems won’t be public until a hearing in bankruptcy court a month or two after the filing. At that time, a judge will try to determine whether the presented reorganization plan can work.
Linda Hume, a bankruptcy professor at the University of Washington School of Law, said many Chapter 11 bankruptcies are converted to Chapter 7 bankruptcies, after which the debtor – if it’s a business – ceases to exist.
Noel Shillito, a Tacoma bankruptcy attorney for more than 30 years, said the best-case scenario for Cascadia is that the court will agree with its position that it can work its way out of its financial mess.
“Ordinarily the judge will give the debtor enough rope to hang himself,” Shillito said. “The judge just has to have a good sense that there’s enough value there, equal to or greater than, the size of the debt.”
The worst-case scenario for Cascadia developers is that the judge rejects the reorganization plan and gives the lender permission to finish the foreclosure.
That’s “the death knell to the project – at least to the developer who’s got it now,” Shillito said.
Kathleen Cooper: 253-597-8546
News Tribune staff writers David Wickert and Mike Archbold contributed to this report.