Regal Plaza developers connected to apartment bankruptcies

The daily paper has an appalling story about tenants in several Tulsa apartment complexes going without central air conditioning because of the complexes' owner's bankruptcy, which is tied to the previous owner's default on mortgages and alleged non-disclosure of said default:

In a subsequent lawsuit in the same court, RC Sooner Holdings alleges that the bankruptcy was filed because the previous owners of the apartments, the development family behind the SpiritBank Event Center in Bixby, sold eight apartment complexes to RC Sooner Holdings without telling the buyer that the properties' mortgages were in default.

"We were duped," said Gorguin Shaikoli, vice president of Delaware-based RC Realty, which previously managed the properties for RC Sooner Holdings. "We thought we did all the due diligence."
Lawsuits, defaulted loans

Additionally, RC Sooner Holdings alleges that RemyCo, The Remy Cos., Home Realty Ventures and six members of the associated Remy family acknowledged that they were in default on their loans to Fannie Mae, a government-sponsored enterprise that buys mortgages from primary lenders, and agreed to pay $1.8 million in forbearance -- meaning to hold off on collection of the debt -- one month after selling the properties and transferring the loans to RC Sooner Holdings.

The lawsuit notes that Fannie Mae did not become aware of the transfer in ownership until January.

Fannie Mae, alleging that the sale of the apartments without its knowledge was a breach of the loan contracts, has also filed eight lawsuits in Tulsa County District Court against the Remys and the legal entities they created to own the apartments.

The lawsuits seek full repayment of the $28.58 million remaining balance on the eight loans.

As the story notes, the Remy family was behind the development of Regal Plaza and the Spirit Bank Event Center in northern Bixby. Regal Plaza was developed with the help of a sales tax rebate -- the city would pay the developer 1% of retail sales from the complex over the first 10 years. Tim Remy was also involved in a proposal for a retail development on the south bank of the Arkansas River in Bixby, called South Village, which likewise would have been assisted by a sales tax rebate. If the development didn't happen (and so far, it hasn't) or failed to bring in city sales tax revenue, the developer wouldn't get any of the money.

Bixby wisely chose incentives that didn't put the taxpayers at risk. Other cities have foolishly fronted money for developers and found themselves stuck and out of luck when the development flopped for one reason or another.

The Remy family of companies seemed to be the image of a healthy, progressive, successful real estate development and investment company. (For example, see this Journal Record feature story on the Remy Companies from 2006.) Regal Plaza was innovative for a suburban retail development (although it doesn't work as well as a pedestrian-friendly environment as it could have). It now appears that much of that success was built on a foundation of sand.

Whether their financial problems are rooted in dishonesty, hubris, the national economy, or some combination of the three, the Remy situation should be taken as a warning to local governments contemplating public-private partnerships. No matter how solid the private partner appears to be, structure the deal to put all the risk on the private partner. Don't stick the taxpayer with the bill.