The luxurious Hillandale residential development on Reservoir Road in Georgetown was sold to one of its creditors yesterday in a foreclosure auction for $14.5 million -- far less than its estimated value.
The only serious bidder was First Federal Savings Bank of Arkansas, holder of a $25 million first mortgage on the property. The project had been in trouble for more than a year. It was originally scheduled for the auction block last July, but the sale was blocked by another creditor, the Saudi European Bank of New York, holder of a $8.3 million second trust.
Hillandale was developed by Hillandale Development Corp., a Nevada-based firm that is part of the crumbling financial empire of Texan C. W. (Clint) Murchison.
Located on the 42-acre site of the former Archbold estate, it was intended as a project of some 200 luxury town houses and detached homes. Initially priced in the $300,000-to-$450,000 range, the homes sold slowly from the start. Real estate industry observers said that high interest rates and heavy competition in that price range were the principal factors in its failure.
Murchison had personally guaranteed the loan to First Federal, according to the banks' attorneys. The bank is currently suing him in federal court in Dallas, seeking to recoup some of its losses.
During bankruptcy proceedings last year, the property was valued at $19 million. With no other major bidders present, however, First Federal evidently felt it unnecessary to bid that much.
The fate of the project is now uncertain, but M. R. Godwin, president of the bank, said, "First Federal is going to get into the real estate business in Washington." He said he plans to talk with area developers and investors, many of whom, he said, had contacted him prior to the auction about possible future development of the site.
Godwin and Philip Gorelick, an attorney for Washington's NS&T Bank, trustee in the foreclosure for First Federal, agree that First Savings would like to find a joint venture partner and certainly would listen to proposals for a total buy-out. "It is important to get local development expertise with management responsibilities involved as soon as possible," Godwin said. However, if no partner or purchaser comes forward, Godwin said he would be comfortable joining the ranks of high-pressure luxury developers in the Washington market.
Gorelick said he was not surprised that no buyer appeared at the auction. "It is hard to get a buy at an auction sale, even one that has received as much publicity as this one," he said. "The next step for us is to get the deed recorded and get First Savings officially on record as the owner," he added. First Savings has 30 days to record the deed.
Charles Ackerman of the Atlanta-based Ackerman and Co., a development firm, was on hand for the auction. Ackerman said his company might be interested in parts of the project. "It is an interesting opportunity. It is a lovely piece of land," which he said went for a "very reasonable price" yesterday. "It is extremely valuable."
His comments echoed the words of many other local developers who reportedly had been reluctant to bid on the project while it was still part of the Murchison empire. Several said during the fall that they were waiting to deal with the Arkansas bank. Godwin confirmed he talked with developers but said he would not reveal their names until he received firm offers.
David Fox of Michael Fox Auctioneers of Baltimore offered various parts of the Hillandale project, including completed town house units and building lots, individually and in various packages. But, time after time, the lawyer for the lender was the top or only bidder. When it was all over, his $14.5 million bid was the only one offered for the total project.
The development, for most of the past autumn, had been in bankruptcy proceedings precipitated by the Saudi European Bank in an effort to save some of its second mortgage. The bankruptcy court hearings dragged on for months during which Hillandale Development Corp. claimed that it was negotiating with potential rescuers. No rescue was forthcoming, and last month Bankruptcy Judge George Francis Bason cleared the way for yesterday's sale.
Saudi European Bank, with its $8.3 million second trust on the site, was left out in the cold as a result of the auction, which resulted in less money than was needed to pay off the original mortgage. However, that bank's second trust was also secured by an office building in another city, one of its lawyers said last summer.
The Hillandale development consists of 43 town houses that were completed and sold before the auction. Those units were not involved in the foreclosure action. However, a coalition of homeowners hired a lawyer and supported First Savings' efforts to foreclose. Five more are under contract and six are available for sale, according to James Rogers, an independent broker who worked for Hillandale Development Corp. and is now running the sales operation for First Savings.
The majestic old Archbold mansion remains on the site. It, along with 151 undivided and undeveloped building lots, was part of the auction package, which also included the 11 completed town houses; a gatehouse that has been used as a residence, and 28 developed lots for detached houses.