Patsy Colburn is a Kahuku woman trying to hold on to her family’s home on five acres on the hills above the former plantation town. Her vision involves buying the entire 58-acre parcel previously owned by Campbell Estate, using expensive short-term loans, then leveraging her position and paying off the debt by quickly developing a 140-home residential subdivision, with half the units to be sold at affordable prices to members of the tight-knit community.
It’s a tricky proposition at best, and despite energy, enthusiasm and an appreciative audience of potential buyers, Colburn and her partners are in danger of seeing the plan collapse under the weight of their own lack of experience, difficulty obtaining financing, lack of infrastructure and technical problems that could make building in the remote location too expensive to remain affordable.
The company’s experience shows the difficulties facing well-intentioned but less experienced community-based partnerships who try to compete in the often cut-throat world of commercial development.
Colburn got off to a fast start in late 2005, partnering with California realtor and developer Kirk Fausett’s Sunrise Venture Group Inc. to create Manager’s Ridge LLC. They were able to pull together a deal to complete the $3 million land purchase, prepared a preliminary subdivision plan and took deposits last year from at least 193 families who paid to get in on a waiting list for the affordable homes. Colburn says 90 percent of those come from Kahuku and surrounding communities.
Colburn and Fausett told a special neighborhood board meeting in Hauula two weeks ago that they were trying to get their project onto a ‘fast track’ by applying for the state’s 201H process which if granted, would bypass key county zoning requirements and allow the company to proceed with the subdivision without going through the lengthy and expensive process of changing the property’s agricultural designation.
But the reality is that Manager’s Ridge LLC filed for Chapter 11 bankruptcy protection in September 2007, listing a total of $4.6 million in debts, including $14,332.72 in unpaid real property tax owed to the city, against assets consisting solely of the company’s interest in the land and a Bank of America checking account containing $26.
Colburn says the bankruptcy is only a temporary setback that is being ‘taken care of.’ She attributes the financial stumble to a greedy lender ‘going behind our backs and trying to steal the property.’
However, the company’s assets reported to the bankruptcy court did not include any office equipment or other trappings of a functioning business.
‘In fact, the debtor does not have any kind of business nor does it hold any meaningful cash funds,’ the attorney representing the company’s largest creditor alleged in documents filed in court.
Colburn acknowledges that Fausett has not previously developed anything on the scale of Manager’s Ridge, but describes him as an experienced realtor and developer.
Kelly Robbennolt, a Utah businessman brought in by Fausett to set up the new company, write its business plan, identify potential investors and then negotiate key parts of the deal, says he was invited into the partnership because the group hadn’t raised any part of the $3 million purchase price and that Fausett did not have ‘any prior experience planning, rezoning, or subdividing properties.’
Robbennolt claims he arranged a series of short-term loans to provide investment funds for Sunrise Venture Group to put into the project, and records show Manager’s Ridge then obtained a one-year loan for $2.2 million loan from 3M Investments Inc. in March 2006 to complete the land deal, but was forced to pay 16 percent interest. The interest-only payments came to $29,333 per month.
According to the lawsuit, Robbennolt advised against going further into debt and paying high interest rates ‘without putting together a solid business case for their projects and informing prospective investors of the risks associated with investing including the company being undercapitalized.’ Robbennolt alleges he was fired after warning the company might be violating state and federal securities laws by offering to sell shares without first registering the company’s stock or meeting other regulatory requirements.
Robbennolt reached a settlement with the company’s primary lender and the suit was dismissed last year, but it can be filed again at a later date against Mariner’s Ridge LLC and other defendants.
Colburn says the 201H fast track is now a key to the project’s success, but approval requires the state to determine the company is ‘qualified by experience and financial responsibility and support to construct housing of the type described and of the magnitude encompassed by the given project.’
This review ‘may include, but is not limited to, information to determine credit worthiness, detailed information on operating costs for private sewer and or water systems, traffic studies, etc.,’ the application states.
Manager’s Ridge has gotten a few months breathing room. Earlier this month, the company reported a $100,000 cash infusion that will be used to pay overdue property taxes and make interest payments while attempting to line up alternative financing.
Through it all, Colburn remains determined.
‘A lot of lenders and others out there want to grab control of Manager’s Ridge, but that’s not going to happen because this belongs to the people,’ she said.