The Leadership Group, a development company headed by two longtime Montgomery County builders, owes $7 million to an estimated 350 suppliers, subcontractors and other creditors, and has stopped or slowed construction on most of its projects, according to Roger Frankel, an attorney for the creditors.
A source close to the company said the developer owes another $7 million to its banks. Leadership owners are Peter J. Berman, president of the company, and Robert D. Berger.
Prospective home buyers who have put down deposits "are in a terrible position," said David Guskin, one of several waiting for houses in a Potomac development. "Virtually all of them have been waiting six months to a year. Their deposit money is sitting in limbo . . . so they can't buy another house."
About two-thirds of Leadership's approximately 185 employes have been laid off since mid-August, according to one of the workers, who asked not to be named.
Representatives of the company and its creditors have been meeting this week in search of a solution that will allow work to resume, Frankel said late this week. Collecting and "digesting" information about the company "is a massive job" that is expected to require several more days, he added.
"My clients are not interested in going on without assurances they will be paid," Frankel said. He would not discuss details of the kind of agreement the creditors would accept, but said that, "As a minium, we would need absolute assurances . . . that we would be paid for any future work."
Leadership spokeswoman Barbara Heissee said only that "we're hard at work trying to resolve our problems, but have no further comment at this time."
A spokesman for National Bank of Washington, one of Leadership's major lenders, said bank representatives also are meeting with company officials. "I'm optimistic that a plan can be put together that will restore this company to its viable former self," said the spokesman, G. William Hollar, vice president for real estate.
Berger and Berman set up the Leadership Group in 1981 after dismantling their former company, Berger Berman Builders Inc., sources said. The developers are best known for building luxury houses that sell at prices beginning at about $300,000, but some of their more recent projects have been homes for first-time and move-up buyers.
Industry observers said they were startled by news that the prominent builders were having serious financial troubles in the midst of a booming real estate market.
"I think probably Leadership's difficulties are a lot older than this recent market," Frankel said. The company went through "a very quick expansion several years ago, and I'm not sure they had the personnel to deal with it."
Another source close to the company said Leadership's officials were unaware of "the magnitude of the problem" until recently because of "very poor accounting and financial records."
Most of Leadership's developments are in Montgomery County, and the company has projects under way in Northern Virginia and other parts of the metropolitan area.
Some of Leadership's most luxurious homes were under construction on nearly 50 acres of wooded hills in Potomac, once the site of the Rockwood Girl Scout National Center. The company, then Berger Berman Builders, made a deal with the national Girl Scout headquarters in 1978 to buy the 67-acre property for $4.1 million. The sale was blocked for three years when a group of local Girl Scouts and troop leaders, who sought to keep the property as a rustic retreat, sued the Scouts' national board of directors.
The local Scouts dropped the suit three years later after the developer and the national Scout headquarters agreed to give 20 acres of the property to the Maryland National Capital Park and Planning Commission for use as a park.
When they agreed to buy the land in 1978, the developers said they wanted to build houses worth more than $100,000 on it. The town houses and single-family homes already completed and those that were under construction on the site until work stopped recently range in price from $200,000 to $325,000 and up.
In an apparent effort to staunch its financial hemorrhaging, Leadership sold 18 of the Potomac lots, ranging in size from half an acre to two-thirds of an acre, to White Flint Builders last October. White Flint is building luxury homes priced at $420,000 to $435,000 on the property, and already has sold eight of them, according to Rick Lerner, president of the company.
Sur Trading Co. bought another 12 lots in the former Girl Scout property from Leadership six months ago, and is building large homes on them, according to a Sur official.
Leadership also has stopped work on its Palisades development of expensive homes on McArthur Boulevard in Potomac; a Germantown project of starter homes, known as Chadsworth; and the Cloisters in Bethesda, where Leadership is the construction manager, sources said.
Palisades, where homes under construction are priced at more than $350,000, is the development where Guskin has put a deposit on a house. Guskin and his family are living in temporary quarters while they wait for the house they were told would be ready for occupany by October at the latest. Several other families waiting for Palisades houses "have already sold and closed on their former homes," he said.
Leadership hasn't "told us much," Guskin said. "When we call, they advise us . . . to wait and see." The developer has assured Palisades buyers, however, that "our money is in escrow where it will not be touched," he said.
Work is still in progress on Bethesda Hill, a 195-apartment project in Montgomery County, and Poplar Tree, a single-family development in Fairfax County, a source said.
Poplar Tree ironically is a development started by Battlefield Builders Inc., the Prince William County company that ceased operations late last year shortly before its three owners filed personal bankruptcy petitions. When Battlefield defaulted on its loan, Washington Federal Savings & Loan Association took over the property and hired Leadership to complete the 22 houses in the development.
There has been "no significant slowing down" of construction in Poplar Tree, said William F. Sinclair, president of Washington Federal. If Leadership cannot finish the work, however, "we have back-up developers who will take over," Sinclair said. He added that he expects construction to be completed in "maybe four to six months."