The lender on two real estate projects left unfinished by developer Justin French might complete the projects itself.
Bank of Hampton Roads is holding off on foreclosing on two apartment conversion projects at 3031 Norfolk St. and 1700 Summit Ave. with hopes of preserving its chances to get the historic tax credits that would be available once the projects are completed.
“Each one of these properties is eligible for tax credits,” said Rick Matthews, an attorney from Pender & Coward representing the Norfolk-based bank. “Foreclosure would wipe out the opportunity for tax credits.”
The projects had stalled prior to French’s arrest for nine felony counts. (You can catch up on the background in an RBS story here). The loans on the projects, amounting to about $15 million, are in default.
There’s also a lingering legal battle involving an architect the bank hired to assess the progress at the two properties.
The bank sued architect Todd Dykshorn in August for allegedly misrepresenting to the bank the status of the Scott’s Addition properties. Those alleged misrepresentations, the bank says, lured the bank into giving large draws of cash to the developer to cover the costs of work that was supposedly completed. (You can read more about that in an RBS story here).
The suits claims 67 draws totaling $15 million were made from the bank to the developer between December 2007 and May 2010.
The suit alleges that the work that was actually done is not even close to what the what the bank paid draws on.
It’s unclear what happened to the money.
“You can look at the properties and tell the money didn’t go to that,” Matthews said.
He said that the bank is trying to get additional records from French’s camp to find out where the money went but that the developer’s legal problems are getting in the way.
“We’re having difficulty doing that because the FBI has everything,” Matthew said. “The criminal investigation makes it difficult for us in a civil sense. Criminal investigations get priority in the eyes of the law.”
Dykshorn responded by claiming the suit lacked a solid legal basis.
Matthews said the bank will soon file a motion to overrule Dykshorn’s claim.
Meanwhile, the bank is moving toward foreclosure on several other French properties.
Matthews didn’t have the addresses immediately available but said the loans were smaller than the Norfolk Street and Summit Avenue projects.
Should it decide to finish the developments, Matthews said, the bank will first put the properties into receivership to preserve the status of the tax credits. It would then have the work done and hope to sell at the highest possible price and get the tax credits in the end.
“As a creditor, the bank has to look at what is the best way to cut its losses,” Matthews said.
And Bank of Hampton Roads may have the resources to pull it off. The troubled bank’s $3 billion parent company recently closed on a deal for $235 million of fresh and badly needed capital.
Michael Schwartz is a BizSense reporter. Please send news tips to [email protected]