Anatomy of a foreclosure: Comerica passed on chance to put Peninsula Bay on sound footing, investors say
EAST BAY TWP. – The investors in the Peninsula Bay condo project in East Bay Township are criticizing Comerica's foreclosure of their property, charging that the bank short-circuited a promising recovery plan underway earlier this year.
Jeff Bazaire, spokesman for the project's investors, said a receiver's current discount sale of Peninsula Bay units doesn't stack up well against the investors' own restructuring plan earlier this year.
Its current approach to selling the units could devalue the projects' assets, the investors say. Their main argument: The asking prices are now less than the prices the condos were actually commanding last January.
Last February, Comerica blocked a key part of Peninsula Bay's own restructuring plan after the investors completed the auction of four units at relatively high prices, Bazaire said. And two months later, it declared Peninsula Bay's $10 million loan in default and sued to have a receiver appointed for Peninsula Bay, derailing the investors' own rescue plan for good.
Now Denny Heck, a court-appointed receiver, has launched a sell-off that roughly resembles the original plan but promises to bring in less revenue due to the lower asking prices, a source close to the project complained. Those prices are roughly $25,000 to $75,000 less than their original pricing. The current asking prices start at $299,000 and extend up to approximately $480,000.
While that might not seem unusual in the current depressed real estate market, the prices are less than the investors obtained in their short-lived auction last January. Thus, Comerica may have hurt the project's viability by not staying with the first plan, Bazaire said. Ironically, this may make it harder to collect on its own loan or to offer a modest return to the investors.
Bazaire, a son of original investors Keith and Constance Bazaire, said his family's plan had strong potential: The successful bidders for Peninsula Bay condos wanted their units badly enough last spring to go to court to take possession of them.
Eventually, Comerica gave in and started closing on the condos sold at auction. But by then, the Bazaires' recovery plan had been dead for weeks.
Peninsula Bay's final act shouldn't have been a fire sale, Bazaire said. "I was just in Traverse City and I saw all the signs for the 'bank sale.' We are watching this very closely." The current sales process isn't likely to maintain the project's value, he said.
Located on U.S. 31 near Four Mile Road, Peninsula Bay is a 30-unit development that East Bay Township approved in 2004. As the Bazaires see it, they were nearly able to rescue it after it suffered a few "significant but curable" financial problems.
The development was intertwined with a complex web of Bazaire investments and loans in recent years. Besides Peninsula Bay, past deals involved the purchase or development of several resort properties in Bradenton Beach, Fla. and in Cheboygan. Much of the capital for these projects came from the sale of the Bazaires' Carter Food Centers chain in 1999 and 2000, although Peninsula Bay was basically financed through a $10 million loan handled by a Comerica office in Grand Rapids.
In court documents, the Bazaires, who are retired and live in Indian River, described mounting problems with servicing the projects' debt. Last fall, under pressure from their many obligations, the Bazaires weren't meeting their "liquidity requirement," the amount of cash or other assets they needed to keep in reserve as the guarantors of the Peninsula Bay loan.
But the project was mostly still afloat, a source said. Interest on the Comerica loan was current through February when Comerica and the investors finally gave up on reaching a "forebearance" agreement that would have kept the bank from foreclosing.
Once they became aware of the liquidity problem in 2006, it was the Bazaires themselves who notified the bank about it, trying to be pro-active, a source close to the project said. They put together a plan to place the project on a sound footing. Part of it involved incorporating garages into the future Peninsula Bay condos to make them more attractive and making them available at cost to current owners. The lack of garages was considered a shortcoming.
In late 2006, the investors also believed that the project's vacant land and unsold condos still held enough value to repay the Comerica loan if everything were handled properly. "The vacant land has some real potential," Bazaire said. Comerica initially supported that idea. With the bank's backing, the four condos were auctioned off.
Peninsula Bay agreed to sell four units of the 22 units at or near their original $300,000 to $400,000 price tags, laying the groundwork for more sales.
"And there was significant interest in four or five other units," a source said. "If we had averaged $300,000 a unit, we would have paid off the Comerica and owned the adjacent property outright, which would have been valued at more than $1 million," he said. That still-vacant land had been reserved for a 25-unit phase two of the project.
The successful auction would create higher price expectations for future sales and set the stage for perhaps another auction and for a new loan with a second bank, the source said. As a result, Comerica could have been paid off and extricated from the deal, Bazaire said. Ironically, Comerica had initially approved the auction and the four resulting sales before pulling the plug on them.
An attorney for Comerica did not return phone calls for this article. But documents obtained by the Traverse City Business News suggest that the bank apparently was unhappy that the investors paid Grand Rapids-based Pioneer Construction, the project's general contractor, $680,000 to erase a lien.
"That's what the guarantors paid, and that's what created the liquidity problem," the source said. Most parties now agree it was appropriate to pay Pioneer, since it had priority as a creditor, he said.
But now the receiver has begun proceeding with an approach much like the Peninsula Bay investors started earlier this year, but with lower pricing. In a letter to Peninsula Bay owners, Heck offered them first-pick of the units at a "dramatically reduced" cost. He also has told current owners that he would begin contacting a list of 100 buyers who had expressed an interest in units since Peninsula Bay's January auction. BN