Update on Presidio in the Pines – Doucette Flagstaff

The events of the past week, with regard to the bankruptcy proceedings of the developer, were not particularly positive. This may be the cloud with the silver lining. The future course of the project is still somewhat uncertain with regard to the completion of site improvements and future ownership of the undeveloped lots. The presiding judge for the bankruptcy action has entered an order converting the current Chapter 11 Bankruptcy reorganization filing into Chapter 7 Bankruptcy liquidation. The result of this order and the fallout from it will occur over the coming weeks. The developer (Premiere Acquisitions and Luxury Lofts), represented by Rick Elsey, was simply unable to raise the necessary capital to complete the entire project, pay the creditors, and initiate a new marketing effort. It is our opinion that Rick Elsey made a diligent, sincere effort to pull together the creditors, the builders and individual buyer’s interests, the City of Flagstaff, and the secured and unsecured creditors. Ultimately, the current economic environment and the need for significant capital was too great a task to accomplish. The court was fair and gave the developer every opportunity to put a plan into place that would work but it just did not happen. Now, the court will appoint an outside trustee whose task it will be to accomplish as much as possible with the disposition of the assets owned by the development. These assets are approximately 150 unsold residential lots and several parcels that were planned for the commercial center, condominium site, and community improvements. The ownership of these parcels is subject to a lien held by the FDIC (after taking over First National Bank of Arizona) and this lien is the primary debt or obligation of the development. In addition, there are certain obligations to secured creditors which will be sorted out after the value of the project assets are determined. Another major factor in moving forward will be the role of the City of Flagstaff in determining how the public improvements will be completed which are subject to assurances provided for their completion. The work currently underway is likely to cease which is unfortunate as the progress has been substantial. The resolution of all of these issues will be important to us with approximately 110 residential lots and our buyers who account for another 23 lots. We are not alone in this situation. TGC Homes and several individual builders hold title to residential parcels as do a significant number of individual owners. We will all have a important interest in the events as they unfold and the timeframe attached.

This next step of Chapter 7 Liquidation is not a totally unexpected or totally negative event. It will add some certainty to the resolution of issues for the community. Once the new trustee or receiver is named by the court, it is likely that a new entity will purchase the interest of the FDIC in the project and the remaining obligations will be paid or extinguished by the completion of the bankruptcy proceedings. That means that someone will own the balance of the project free and clear of any liens and will be in the position to determine how the project moves forward with either completion of improvements or marketing efforts. At the same time, the current builders and individual owners have a significant investment in their lots and we will be determining how to move forward with a plan to complete our goals in the most efficient manner possible.

Doucette Flagstaff intends to honor any commitments that we have made and we will do everything we can to assist our buyers with financing or other accommodations to see their homes completed. The current level of site improvements is near enough to completion that a cooperative effort among the builders and others will result in our ability to move forward with home construction. I believe that the City of Flagstaff will be as helpful as they can in working with the builders and the individual owners to coordinate necessary improvements with actual construction of homes. However, we are dependent on the timing of the completion of necessary public improvements, clarification of ownership issues, and resolution of financing for construction on individual homes. I do expect that we will be able to move with a little more independence now that the bankruptcy issues are determined to be a liquidation action. As soon as we can determine a course of action based on a reasonable schedule of decisions by the City of Flagstaff, the Court, the bonding company, and others, we will announce a plan of action and put our construction plans into effect. The plan for the Presidio in the Pines still provides an excellent opportunity for a unique living environment. The general market conditions are showing some encouraging signs of stabilizing and the values and pricing inherent in the community still exhibit a strong opportunity for long term success. We have to deal with the circumstances as they are and not as we had hoped them to be. We needed a clear path of resolution to all the uncertainty and I believe that the court’s ruling provides the first step to accomplishing our primary goal of building homes in Presidio in the Pines.