Caught by the slumping housing market, a large swath of a new-home development in Harford County went to foreclosure auction yesterday and was bought back by the lenders - for $7 million less than what was owed.
The lenders, a group of local investors who were the previous owners of that Havre de Grace property, outbid at least one other party to regain the 85 acres that make up phases two and three of Greenway Farm. Their attorney said they plan to move forward with the development, which sits directly to the east of the Bulle Rock Golf Course.
The group's $21 million bid was only three-quarters of the debt, which totaled about $28 million.
It's a potent example of how much the market has weakened because that part of Harford County has as much going for it as any area in the state. The property is a short drive from Aberdeen Proving Ground, which will be getting thousands of government and contractor jobs as part of the national base realignment and closure process. Those jobs are expected to begin arriving in earnest in two to three years, which means increased housing demand shouldn't be far off.
"The market told us - through the auction - that no one was willing to pay above $21 million," said Baltimore economist Anirban Basu, chairman and chief executive of Sage Policy Group Inc., an economic and policy consulting firm. "This really tells us that people are very hesitant to put a bet on residential development right now."
K. Hovnanian Homes, the national builder erecting townhouses and townhouse-style condominiums in Greenway Farm's first phase, did not comment on the outcome yesterday. But it emphasized this week that its 276 phase-one homes - both built and unbuilt - were not part of the auction. Buyers will get the clubhouse and amenity center they were promised, the builder said.
While rising foreclosures are hitting both homeowners and developers, the Greenway Farm situation isn't as simple as an inability to pay.
Acacia Capital Corp. bought the property to develop it for K. Hovnanian. After the booming market burst, the builder decided not to exercise its option to purchase the final two phases, approved for 414 homes. A. Hugo DeCesaris, a regional president for K. Hovnanian, said in a statement in April that both his company and Acacia believe the land is now worth less than the price originally agreed upon, but the lenders "were unwilling to resolve the matter short of foreclosure."
Acacia did not return phone calls seeking comment.
Towson attorney Curtis C. Coon, the trustee appointed by the lenders to oversee the foreclosure, said the group believes the value, if anything, has risen since the contract was struck. Members include Ronald W. Benfield, who runs a real estate appraisal company; Charles Benfield, founder of Benfield Electric, an electrical contracting firm; and Chris Michel, a land developer. Because they have development experience, they could handle the project themselves, Coon said.
"They're hoping to move houses out of the ground as soon as possible," said Coon, who estimated that construction could begin in a year. "They're interested in making this the crown jewel of Havre de Grace. ... We do feel confident that while we will not realize the money as early, we will actually make more money this way."
Daniel Billig, a partner with A.J. Billig & Co. Auctioneers, which ran the foreclosure auction yesterday, said four parties registered to bid - two local developers and a national builder, besides the lenders. But not all ended up bidding.
Clark Turner, a Harford County builder and developer who is part of the team handling the sizable Residences at Bulle Rock project next door, was one.
"I came in and had a number in my head that might work; it went higher than that," said Turner. "I think it's a good piece of property, naturally. I'm with the group that's developing the land on the other side of it, so we certainly believe in the area."
Builders have faced pressures for months as sales have declined, a sharp change from the housing-boom days when they couldn't build fast enough to keep up with demand. New-home sales in April were about 10 percent below the pace a year earlier, according to the most recent federal numbers.
Hovnanian Enterprises Inc., the New Jersey-based parent of K. Hovnanian, said its home sales in the Mid-Atlantic area fell nearly 17 percent in the three months that ended in April, its most recent quarterly report. Its number of net new contracts fell even more sharply across the country. The company lost about $30 million in the quarter, compared with about $100 million profit during the corresponding period last year.
It's been walking away from land options all over, not only in Havre de Grace, to stem its losses.
"An excess supply consisting primarily of existing homes remains in many of our markets," Ara K. Hovnanian, the company's president and chief executive, said in a statement when its earnings were released. "Before the current housing market correction is over, the market needs to work through those inventories."
Joseph E. Cater, chief economist and president of Market-Economics Inc. in Annapolis, figures K. Hovnanian lost interest in finishing the final two phases of Greenway Farm because homes in the first phase weren't selling quickly enough. New homes priced in the midrange - neither very cheap nor very expensive - are feeling the pinch of the housing slowdown the most, he said. Starting prices for Greenway Farm homes range from about $270,000 to $390,000.
Michael Hepner, a New Jersey resident who bought a townhouse in Greenway Farm as an investment property to capitalize on the base realignment, was concerned at first to hear about the foreclosure. He said he felt better after talking to K. Hovnanian.
"The clubhouse still will be done," he said. "The only thing I'll miss is it wouldn't be as big a neighborhood - it won't be one unit."