Washington's plush, but bankrupt, Hillandale development on Reservoir Road across from Georgetown Hospital is scheduled to be sold at auction Tuesday after months of legal battles over the project's future.
First Savings Bank of Arkansas, holder of a $25 million first mortgage, is foreclosing on the property, which was being developed by Hillandale Development Corp., a Nevada-based company operating out of Dallas. Hillandale Development is part of the crumbling financial empire of former Dallas Cowboys' owner Clint Murchison.
The prestigious, but unfinished, residential Washington project is estimated to be worth $19 million in today's real estate market, according to court documents, $6 million less than the first trust.
The Hillandale development is on the site of the old Archbold Mansion, once one of Washington's most elegant estates. The mansion is still standing and is part of the auction package. The town houses at Hillandale -- some of which have elevators -- have sold at prices ranging from $299,000 to $425,000.
Federal Bankruptcy Court Judge George Francis Bason cleared the way for Tuesday's auction after the company failed to come up with a rescuer or a reorganization plan by a Jan. 11 deadline he had set during Chapter 11 bankruptcy proceedings before Christmas.
The auction is scheduled for 10 a.m. in the ballroom of the National Press Building. Commercial brokers and attorneys representing investors and developers from several major cities are expected to show up, but most brokers predict that those potential investors will be there to talk to First Savings Bank officials after the bank takes control of the property, rather than to bid against the foreclosing institution.
"We are glad that it looks like it the foreclosure is coming to a conclusion," said M. R. Godwin, president of the Arkansas lending institution. It has been estimated that his bank is losing $10,000 a day in interest alone. But, "You never know what will happen at an auction," Godwin said.
If his bank ends up as the developer, Godwin said that "will be ok. We are prepared to get into the real estate business in Washington."
Like others, Godwin said he thinks investors may be waiting for his institution to get the project back before they make a move for all, or part, of the development.
"At this time we see no impediments to the auction on Jan. 22," said attorney Philip Gorelick, who represents Washington's NS&T Bank, the trustee in the foreclosure. NS&T has no financial interst in the Hillandale project.
Attorneys for Hillandale Development had told Judge Bason in closed court sessions last fall that the corporation was negotiating with two possible investors interested in buying the project. The names of those potential rescuers were kept secret by the court.
"Their mystery purchasers just never appeared," according to Dan Litt, the attorney who represented First Savings Bank during Hillandale Development's attempts to reorganize under Chapter 11 of the bankruptcy code.
First Savings Bank has been trying to foreclose on the property since the summer. A mid-July foreclosure auction was halted just a half hour before it was to begin when Saudi European Bank, holders of an $8.3 million second trust on the project, went to court to try and force Hillandale into involuntary bankruptcy.
Hillandale Development, soon thereafter, asked the court to allow it to go for a Chapter 11 bankruptcy and asked for time to come up with money to pay creditors. The Saudi bank's action resulted in a stay against foreclosure and touched off a series of appeals by the lender for relief from that stay.
Attorney Litt said creditors other than First Savings Bank at this point are almost certain to lose out, but that his client has been losing all along. The Saudi bank did not register any protest during recent weeks to the scheduled Tuesday auction; neither did any other creditor. The Saudi bank's interest is also secured by a Texas office building.
Several months ago, a coalition of residents living in the completed town houses at Hillandale hired their own attorney to protect their interests. The homeowners sided with First Savings Bank and asked the court to go along with foreclosure. During recent months, those residents have experienced a lack of services, including what they have called inadequate security as a result of the corporation's failure to pay its bills. None of the units sold prior to the corporation's financial troubles are involved.
The foreclosure package includes, in addition to the Archbold Mansion and its grounds, 151 building sites; the gatehouse which has been used as a residence; 12 completed town house units and 28 developed, but not subdivided, building lots for detached houses. All easements, equipment and machinery will also be sold.
There are six existing sales contracts on units in the completed section. "We will honor those sales contracts," attorney Gorelick said. In fact, the auction is expected to speed up the ability of the sellers to develop clear titles to those units.
According to Litt, the Hillandale package will first be offered for sale separately: Group I includes the completed town houses; Group II is the gatehouse; Group III is the mansion and grounds and the 151 building sites, while Group IV is the 28 undeveloped lots.
Then, Litt said, the entire package will be offered. "We will take whichever produces the highest aggregate figure," Litt said.
First Savings Bank is expected to bid the amount of its trust in order to get control. Many observers said there are a lot of investors "watching this closely." There will be plenty of people wanting to talk to that Arkansas bank."
As one broker said, "Hillandale just hit the market when this area was glutted for high-price houses. There were places where you could get more for your money; interest rates were high too. . . . But you just can't beat the location."