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Feb. 05, 2008
Copyright © Las Vegas Review-Journal

REAL ESTATE: Another sign of crisis

Developer stops making interest payments on $500 million in land-backed loans

By JOHN G. EDWARDS
REVIEW-JOURNAL

Focus Property Group Chairman John Ritter won land in Henderson with a $557 million bid at a Bureau of Land Management auction in June 2004. In another sign of the housing and lending downturn's effects, Focus has stopped making interest payments of $500 million in land-secured loans.
Photo by Clint Karlsen.

Focus Property Group, one of the largest developers in Southern Nevada, has stopped making interest payments on $500 million in loans secured by 4,800 acres in the Las Vegas Valley, Pahrump and Victorville, Calif., company executives said Monday.

The company said 2,100 acres of the land involved is in metropolitan Las Vegas, 1,700 acres in Pahrump and 1,000 in Victorville. The company started notifying lenders late last week that it would not make its February interest payments.

Chairman and Chief Executive Officer John Ritter said he is negotiating with lenders and looking for a solution that will preserve the assets securing the loans and ensure his company's continuing viability.

Focus Property's disclosure is the latest sign of the housing and lending crunch that has spurred massive defaults on subprime and other residential mortgage loans in Nevada. Nevada has the highest foreclosure rate of any state and there is a massive inventory of vacant single-family homes in the valley.

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    • As the inventory of vacant homes has grown, new-home building has all but screeched to a halt, wiping out demand for vacant land. Ritter's company developed the land for home builders and, to a lesser extent, shopping center developers.

    "We haven't sold a piece of single-family residential (land) since early 2005," Focus Chief Operating Officer Tom DeVore said.

    Ritter believes his company owns more raw land than any other entity in the Las Vegas area except The Howard Hughes Corp. Ritter has made news in recent years by buying large chunks of land from the Bureau of Land Management at auctions.

    To finance these purchases, Ritter's company borrowed from hard-money lenders, who solicit investments from individual investors. These lenders make short-term loans to developers, typically at double-digit interest rates. Ritter said the rates on his company's loans average 11 percent.

    Builder's Capital and half a dozen other local hard-money lenders, sometimes called private lenders, are servicing the loans that Ritter wants to restructure. Ritter said he owes $200 million more that he is not seeking to restructure now.

    "To the extent we're humanly able, we're going to stand behind our obligations," DeVore said.

    Ritter called the current real estate market conditions the worst he has seen in 26 years in the business.

    "In almost all categories of real estate, liquidity has dried up," Ritter said.

    The lenders who service loans funded by individual investors have no attractive option to working with Ritter, one analyst said.

    If the hard-money lenders foreclose on behalf of their investors, the lenders will be forced to do the developers' work or sell the land at fire-sale prices during the worst real estate slump in recent years. In addition, the lenders would face the difficult task of getting numerous individual lenders to approve ways to convert the asset into cash.

    Focus retained the financial advisory services of the Blackstone Group, a giant private equity company with $98.2 billion in assets under management.

    Ritter said his company is pursuing several ways of restructuring the loans, but he said Focus does not intend to file for bankruptcy protection.

    The company is asking for forbearance so that it will not be required to make interest payments, possibly for two years, one source said.

    As one way of compensating for concessions, lenders have proposed that Focus give them a portion of the potential gain when the land is ultimately sold, said Michael Saltman, principal owner of Vista Financial Resources. Saltman said loans to Focus account for $40 million of about $65 million in total loans at Vista Financial.

    "(Ritter) will work this through to his benefit and to the benefit of all the people who have been lending him money throughout all of these years," Saltman said.

    Steve Brockman, president of Builder's Capital, said his firm met with Focus briefly last week.

    "It's a top priority for us, and I'm sure for the other private lenders in town," Brockman said.

    Las Vegas isn't immune to a credit crisis, Ritter said.

    "Long term, I don't think there's a stronger market in the country," he said. "I'm giving it a couple of years to work through the crisis and inventory. And then, we're off to the races again."

    Ritter had been flying under the development radar until November 2002 when he outbid Olympia Group's Garry Goett at a Bureau of Land Management auction, paying $160 million for nearly 1,000 acres that would become part of the Mountain's Edge master-planned community in the southwestern Las Vegas Valley.

    He bought 485 acres of BLM land for Providence in the northwestern valley for $113 million in 2003 and raised the bar for land prices in 2004 when he paid $557 million for 1,940 acres in Henderson for the Inspirada community. He picked up another 1,710 acres at the gateway to Kyle Canyon for $510 million in 2005.

    Contact reporter John G. Edwards at jedwards@reviewjournal.com or (702) 383-0420. Review-Journal reporter Hubble Smith contributed to this report.



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    PS wrote on April 21, 2008 08:40 PM: I knew Andy as a boyfriend/lover/friend. He was an amazing father, son, brother and man. I want all of you to think for a quiet moment without writing any more negative comments. This wonderful man died too young -- unexpectedly. I received a dream come true the minute Andy entered my life. I believed in him. What happened was wrong and I am lost for words. As you read this, close your eyes, think of the best moment in your life. Was it your baby being born? Or walking down the aisle to see the love of your life smiling at you? Maybe something as simple as feeling the warmth and comfort of a strong hug, that was Andy... I miss him every day. Please stop writing unsavory posts about this humble man you obviously never knew. His passing had nothing to do with business and/or Focus Group.


    KS wrote on March 15, 2008 03:26 PM: Andy Flaherty's death had NOTHING to do with what has happened to FOCUS, and anyone close to the situation knows that. He was an incredible man who's death was unexpected and tragic. There is absloutely NO investigation into his death, and that's why there has been no media converage.


    Colin wrote on March 04, 2008 05:58 PM: Where can one find out more about the death of Andrew Flaherty. I am surprised that a google search, searching the LVRJ and all the news station websites does not return any information about his death.

    I would think this would be a media worthy story. The only thing out there is his obituary. This is really sad news.


    alan berk wrote on March 02, 2008 08:06 AM: This is a great time to buy!
    Forget all of those fancy neighborhoods - over inflated and built on the cheap!

    Buy in the older neighborhoods south and east of the strip and 3- 5 years from now you will have made money!

    If you work on the strip think how much money you will save driving just 10 minutes to work


    Steve wrote on March 01, 2008 03:28 PM: This is a classic example of "to big to fail". Borrow $100,000 not pay it back and you get foreclosed. Borrow 100 million and you get a free ride (ask Trump...he did it in the 80's) I say foreclose...and hold a fireside sale.


    Joe wrote on February 29, 2008 06:36 AM: Get Real wrote on February 09, 2008 08:06 PM:
    For anybody who forgot, the outrageous prices paid for that land is one of the reasons why builders upped their prices so high to begin with. Sorry but I have zero sympathy for speculators.


    Not only that Real, but builders hired cheap illegal labor and the quality of construction fell sharply in the past few years,incredibly at the same time they were tripling prices. All these guys ripped a lot of people off and now want our sympathy.... BOO HOO.

    Thankfully, we did not sell our old house and get sucked into the madness.


    XCchecker wrote on February 10, 2008 04:10 PM: LP & PS, do you really think Andrew Flaherty did a "voulunteer" header off Turnberry or was pushed by his fellow conspirators in this land scam? Word is that investigation into his death is still on going. More pressure being applied now that Ritter et al, have been smoked out along with Focus group going "bankrupt"!


    Get Real wrote on February 09, 2008 08:06 PM: For anybody who forgot, the outrageous prices paid for that land is one of the reasons why builders upped their prices so high to begin with. Sorry but I have zero sympathy for speculators. Real estate can be a dangerous game when novices get involved and think that they are "experts".


    END WINNER? wrote on February 08, 2008 10:11 PM: The comments below are just the passing thoughts and opinion of a simple minded resident and citizen, clearly not a developer or Attorney by trade, who is wondering when the dust settles who will appear as the winners?


    END WINNER? wrote on February 08, 2008 10:05 PM: Let’s start by considering how much damage Mr. Ritter and FOCUS have caused as a “Master Developer” (try not to laugh when using this terminology applied to FOCUS or its upper management) to other real estate developers. Other smaller developers have purchased land from FOCUS within these “master planned communities” and these lots can’t be developed yet (they are not “finished lots” – i.e., no paved roads or st.’s to these lots yet, utilities, sidewalks, etc… Although these other developers have entered the market with a reasonable strategy of taking small tracks not one massive project in order to protect their investment, they will get pennies on the dollar due to the questionable management practices of FOCUS. If you own land/home as an individual within any of these unfinished communities, you will not be getting any of the master plan amenities (forget about a pool, tennis courts, gym, social area, etc… unless their already built. Also, please imagine how this affects the “M Resort” which has already broken ground! FOCUS controls the Inspirada development, for the time being, which owns approx. 90% of the developable land between Anthem Country Club in Henderson all the way to the South Strip! The “M Resort” will not survive in attempting to cannibalize local customers from Green Valley Ranch or Red Rock Hotel & Casino’s. The list of those damaged by FOCUS goes on and one… and we get to read the words of moron Focus Chief Operating Officer Tom DeVore stating “"We haven't sold a piece of single-family residential (land) since early 2005,". Put that statement on your resume TD!


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