Israel, investors hit by property slowdown
Posted on Sunday, August 17, 2008
Israel
Fayetteville developer Ben Israel's real estate holdings included 63 projects in four states early last year.
Those holdings have dwindled down to six properties, mostly in Northwest Arkansas.
Dixie Real Estate, Dixie Construction, Dixie Development and the other Dixie companies once had a total of 130 employees and planned to occupy the top two floors of the Commerce II building along Joyce Street.
Today, two employees - Israel and his assistant - operate in an upstairs office space in a building along Rolling Hills Drive. The 60, 000-square-foot office building is being foreclosed because the cash flow from rental units can't cover the debt service.
Israel said he's settled all except less than a dozen of the 81 lawsuits that have been filed against him and his projects. He's trying to pick up the pieces of what's left and move forward.
"It's our goal to get as many paid as possible. "he said. "We could have thrown up our hands. That's not what we chose to do."
The soft real estate market in Northwest Arkansas has taken its financial toll on builders, developers, contractors, suppliers, Realtors and others. It has also caused hardship for investors in failed developments. Israel and the numerous investors in his many projects have suffered serious financial loss, faced costly legal battles and struggled to deal with nervous bankers.
Investor woes Investors in Israel's projects say they have suffered huge losses. In many cases, investors have stepped up and taken over Israel's projects and refinanced them with bankers willing to be flexible to try and avoid losses.
Most investors interviewed refused to comment on the record because of pending litigation and the possibility of future legal action. Investors said Israel would typically find four or five investors with strong financial statements and good credit histories to join him in seeking bank financing on construction projects. Investors described how Israel used "vertical integration"to handle each project with his various Dixie companies. Israel bought the properties through his real estate company, completed the site work through his excavation company, built the project with his construction company, used his landscaping company and then leased and operated the property through his management company. "They haven't turned out the way I'd hoped," Tom Muccio, a retired Procter & Gamble executive who is one of the largest investors in Israel's projects, said. "I'm just trying to work my way through - project by project. "Muccio would not discuss the specifics, but he confirmed reports that he's taken over management of many of the troubled projects that he invested in with Israel. He said he appreciates the willingness of local banks to try to work through these difficult situations.
"I've taken over projects with negative cash flows, lawsuit and liens," Muccio said. "The local banks have been very helpful with me to restructure deals so we could keep the projects. It's still very painful. "Muccio is the chief executive officer of the BioBased Family of Companies, which includes a soy-based spray foam insulation business that Israel once had an interest in. Even smaller investors in his projects have felt the financial sting. Some said they have lost not only their initial investment, but they've also been required to put up more money or subsidize cash flows to satisfy lenders. "They are pretty lucky if all they lose is their investment," John Marinoni, a small investor in one of the projects, said. "I don't think there are any happy campers among the lot."
Like stock broker Israel regrets that investors in his projects lost money. He's lost a lot of money, too.
"Unfortunately, people have been hurt - friends and acquaintances," Israel said. "You wake up thinking about it and wish it hadn't happened that way.
"There's not a single project that I am not losing more than any investor," he added. "On several, I am losing more than all of them combined. "
Israel said he did not go searching for investors in his real estate projects. They came looking for him because they wanted to make money in the then redhot real estate market.
"When times are good, you are brilliant. When times are bad, you're not so smart," he said. "It's not much different from a stock broker. "All of us wish it would have been different."
Lots of lawsuits Israel and his investors have faced a flurry of lawsuits. He's settled most of them, he said. Israel settled an almost $ 4 million lawsuit filed by ANB Financial last year against Signature Properties by deeding the property to the bank in lieu of foreclosures, he said.
In some cases, he's paid less than the balance due to settle judgments. He's also agreed to sign a judgment in order to avoid additional legal fees.
Sharon Baggett, one of two real estate brokers who sued Israel to collect unpaid commissions from Dixie Real Estate, said she agreed to take less than the amount she was owed in satisfaction of the judgment. She said the other agent did the same thing.
Baggett said she's lucky she was able to get back from Israel her initial investment on one project, but unfortunately she remains on the hook with the lender.
Israel was set for trial earlier this month in Washington County regarding unpaid personal property taxes for one of his companies, but he agreed to a consent judgment, Washington County Attorney George Butler, said. A consent judgment is a binding judgment in which parties agree, by stipulation, to a particular outcome. The most recent known lawsuit, seeking a judgment for a past-due credit card, was filed in Washington County in June, according to court records in Benton and Washington counties.
Pending foreclosures Two Israel projects currently face foreclosure, and others are set for trial or are pending. A federal judge earlier this month approved a foreclosure against the Commerce II office building along Joyce Street where the Dixie companies had planned to occupy the top two floors. The case went to federal court because so many of the investors were from out of state. First Federal Bank was awarded a foreclosure decree on July 2 against Hwy. 102 Investors on $ 2. 1 million in debt secured by a convenience store along Arkansas 102 in Benton County. The property also includes retail space and a car wash, investors said. Foreclosure sale dates have not been set on either of these properties, according to court records. The Nelson's Crossing retail development along Joyce Boulevard in Fayetteville also faces a foreclosure lawsuit, filed on May 23 by one of the subcontractors. The case is set for trial on Dec. 1. Liberty Bank filed a $ 2. 9 million foreclosure lawsuit last August against the Creekside Center project on Mall Avenue in Fayetteville. The case is set for trial on Feb. 27. Investors said they are concerned that other projects may end up in foreclosure or litigation.
Reality check Israel said he's looking on the bright side of his financial woes because it has caused him to draw closer to his Christian faith. "I'm actually grateful. It has pointed me to who I am," he said. "God brings these things into your life to bring you a reality check. "I was making choices I would not normally make. This has forced me to take a hard look at who I am and who I want to be," Israel said. "I want to be what God wants me to be for the rest of my life. "Sometimes we need a good lesson in humility - I certainly did. "He also said he's grateful to have a loving, supportive wife who has stood beside him during these trying times.
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