Weighed down by debt and a sluggish real estate market, developer Robert Kettler has been forced to give up ownership of two huge planned communities in Loudoun and western Fairfax counties to Chevy Chase Federal Savings Bank, which had provided millions of dollars in financing to launch the projects.
Kettler, who heads the Northern Virginia development firm Kettler & Scott, has given up title to the projects, known as Cascades and Brambleton, to several corporations headed by officials of lender Chevy Chase, according to documents filed in Loudoun County and Baltimore.
The projects represent Kettler's dream of recreating the flavor of small-town America in Washington's outer suburbs.
Covering 6,000 acres and including millions of square feet of office and retail space, the projects are expected to house more than 30,000 people upon completion -- the same number of people now living in Manassas. Their eventual worth had been estimated at $4.5 billion.
Kettler's setback is another strong signal that Loudoun County is apparently not about to undergo the rapid-fire growth that many had expected in recent years, as the development boom swept westward across Fairfax County.
Work on Brambleton, west of Dulles International Airport, has been delayed because of the market slowdown.
The widely advertised Cascades development, alongside the Potomac River at the Loudoun-Fairfax border, is well underway, however, and contains about two dozen separate residential subdivisions built and financed by other firms.
But the sharp decline in the region's real estate market left several home builders unable to pursue projects at Cascades.
In addition, Kettler assumed a heavy debt to pay for construction of miles of highways and roads serving the area -- essential public services that were required by county officials.
Kettler declined to discuss transactions, but he said "the restructuring is something that was necessary."
He said he will complete the projects and remain the developer.
"I'm very satisfied with where we are," said Kettler, who comes from a long line of Washington area builders. "We are in essentially the same position we have been. Kettler & Scott is still developing the project."
B.F. Saul II, chairman of Chevy Chase, said that the transfer of the projects will enable them to be completed.
"Bob Kettler is still the chief executive officer; he's still the developer," Saul said. "People are buying houses and people are buying lots. The loans have simply been restructured to enable the projects to go forward."
Furthermore, he said that taking ownership of the projects from Kettler will have no impact on Chevy Chase, Maryland's largest savings and loan, which has already been hit hard by soured real estate loans.
Saul said he plans to stand behind his developers, and he called the change of ownership "an interesting example of how in difficult times a successful job can be seen to its conclusion."
However, if Chevy Chase is unable to sell the land to home builders it may be forced to recognize millions of dollars in losses on the loans.
Chevy Chase was one of several lenders who provided initial financing for the projects, according to industry sources. It is not certain where Kettler's obligations stand with the other lenders, all of whom are foreign, according to sources.
Kettler would not discuss who his other lenders are.
The transfer of ownership to Chevy Chase took place over the past three months through a series of complex, unannounced land transfers to corporations controlled by Chevy Chase executives.
Documents indicate that at least $120 million worth of property changed hands in what were essentially deeds in lieu of foreclosure, according to sources at Chevy Chase.
It is unclear what the impact of Kettler's problems will be on Loudoun County, which had counted on tax revenue to be generated by the two new communities.
The projects also are expected to include a variety of public services such as park land, bike trails, a library, a group home for the mentally ill, a residential center for senior citizens, community centers and a farmers market.
County officials said yesterday that they believed the improvements would eventually be built and they praised Kettler for agreeing to expensive amenities the county sought in exchange for the projects' approvals.
Kettler offered the county an unprecedented package of extras, known as proffers, which included building five miles of the Algonkian Parkway, 20 miles of trails, a bridge, a highway interchange on Route 7 and an expansion of Route 7 from four lanes to six.
The amenities -- which represented an enormous savings for Loudoun County but cost Kettler more than $50 million -- drew a standing ovation at the public hearing when they were unveiled.
Loudoun County officials and real estate experts said it was the enormous cost of providing those amenities that left Kettler without the financial resources to weather the slowdown in the local real estate market. When builders pulled out of agreements to develop Cascade land, Kettler was thrown into financial turmoil.
Kettler acknowledged that this was part of his problem.
Betty W. Tatum, chairman of the county board of supervisors, called the change in ownership "sad."
Kettler & Scott "were left holding the bag" because of the recent real estate downturn, Tatum said.
Loudoun County Planning Commission member Robert Palmer said he saw "some saving grace" in the retention of Kettler & Scott as manager of the project.
"At least they'll have their fingerprint on the community if and when it develops," he said.
But while Kettler maintains a role as manager, being paid a monthly fee to develop the projects, he is no longer the sole decision maker, according to sources who say ChevyChase is taking an active role in the future of the projects to protect the millions of dollars they have invested.
"It's very clear that Chevy Chase is calling the shots entirely," said one real estate broker, based on his contacts with Kettler & Scott. "You need to talk to Chevy Chase to do any kind of deal there."
It appears that with the change in control, some priorities have changed at the properties.
At Cascades, for example, plans for a golf course have recently become a main emphasis. At a time when many parts of the real estate market have suffered, development around golf courses remains a strong market.
Saul and Kettler remain optimistic about the projects, saying the infrastructure at Cascades has been completed and interest remains high among builders and home buyers.
Builders in the area also expect that Cascades and Brambleton ultimately will be successful, although they are uncertain of the future of Kettler & Scott and believe that real estate problems will continue to put an enormous strain on Chevy Chase.
Mike Kledzik, who is building homes within Cascades, said, "I really don't anticipate a problem" because of the "strong financial backing by B.F. Saul."
He said the situation at Cascades reminded him of what happened at Reston, another huge master-planned community begun in the 1960s as the brainchild of developer Robert E. Simon.
Over its 30-year history, ownership of Reston has changed several times, each bringing a new developer with new ideas to the community amid rumors that Reston would fail to be completed. Ultimately, Kledzik said, "it's a beautiful community."
And at least one recent home buyer at Cascades is unfazed by the change in ownership.
The Rev. Paul Opsahl, whose Community Lutheran Church is slated for completion at Cascades in 1991, was the first resident of Cascades and he said he expects many neighbors in the coming year.
Land is being graded, and apartments are being built close to his house, and Opsahl said he has no intention of delaying the church plans. "I still feel this community has a good future," he said.
The immediate future is somewhat more uncertain at Brambleton. Saul said he expects a delay of about four years before home construction will begin.
The rezoning of Brambleton to permit the massive development to proceed was approved by the county officials in July, only weeks before Kettler transferred the property to Chevy Chase.
Kettler's standing is high in the county and his leading role in the Brambleton project was seen as crucial to winning county support, according to Loudoun officials and real estate industry executives.
Staff Writers Steve Bates, Jacqueline Salmon, David Hilzenrath and Debbi Wilgoren contributed to this report.