BB& T Deal Eases Comstock's Debt

Workout to Foreclose on Six Properties

Comstock Homebuilding of Reston said yesterday it has reached a deal with lender BB&T to wipe $32.7 million worth of troubled development loans from its books as it struggles to rebound in an ailing housing market.

Under the deal, BB&T foreclosed on four of Comstock's properties in the Atlanta area yesterday. Two properties in Northern Virginia -- a condominium project in Manassas and a single-family home project in western Loudoun County -- are scheduled to go into foreclosure by Sept. 30, according to Comstock.

The foreclosures will relieve Comstock of its obligations to BB&T, based in Winston Salem, N.C. It is the first workout the home builder has announced since it said in July that it would cease making payments on about $94 million worth of debt in order to force lenders such as BB&T to negotiate. Comstock had about $144 million of such debt at the end of the second quarter.

"We are working to restructure a significant portion of our debt to ensure our ability to survive what has turned out to be the worst cyclical market downturn in a generation," Christopher Clemente, Comstock's chairman and chief executive said in a statement. "We continue to focus on similar negotiations with certain other lenders and remain optimistic regarding the outcome of those negotiations."

BB&T, the fourth-largest commercial bank in the Washington area by deposits, has seen the number of past-due loans in its total portfolio increase in the first six months of the year to $282 million from $223 million.

One analyst, Richard X. Bove of Ladenburg Thalmann, said BB&T would probably face more losses from its residential loan portfolio, particularly in the Atlanta market, with about a 10-year supply of developed lots.

"The debate, of course, is the extent of the losses," Bove said in an interview. "You either have faith in the way they have underwritten their product or not."

Last week the bank announced that its chief executive of 20 years, John A. Allison, would step down by year's end. The bank said its chief operating officer, Kelly S. King, would succeed him.

The move prompted Bove to speculate that BB&T might be open to a merger with a similar bank. Bove, in his note, wrote that while Allison would never accept anything more than a controlling position in any kind of deal, King might be more open to a shared arrangement.

BB&T declined to comment on Bove's speculation.

BB&T's announced workout with Comstock illustrates the troubles facing the banking industry.

The delinquency rate on construction and development loans hit 8.1 percent at the end of June, the highest rate for any category of bank loans, according to the Federal Deposit Insurance Corp.