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Residential risk: with $12 million on the line, Melvyn Bell discovers new peril in the wilds of West Little Rock.

Residential Risk

With $12 Million On the Line, Melvyn Bell Discovers New Peril In The Wilds of West Little Rock

A Back in 1987, Melvyn Bell launched a $6.72 million improvement project to convert 166 acres of hilly woodlands in west Little Rock into three residential subdivisions encompassing 235 lots.

Three years and a disappointing eight lot sales later, the engineer who amassed a fortune as the founder and chairman of Little Rock-based Environmental Systems Co. is gearing up to refinance his real estate venture. The wheels are in motion for a second bond issue that could make or break the development.

"That's in the works," Bell remarks in confirming the proposed bond issue. The Fort Smith native declines further comment on the deal other than acknowledging that he hopes to have the refinancing complete in the coming weeks.

Besides the bond issue, Bell also has to contend with servicing conventional debt that runs as high as $5.78 million on his residential property plus 230 undeveloped acres that adjoin it to the west. His refinancing effort could enfold this property as well.

"You know that I don't like talking about my personal business," laughs Bell when asked to elaborate on his development plans for his additional acreage.

Insiders indicate Bell's second tax-free bond issue would likely be a private placement with defrayed bond payments built in to give him breathing room in return for a higher interest rate for investors.

Bell formed Carriage Creek Property Owners Improvement District No. 639 of Little Rock as a vehicle to finance streets, drainage and utilities for his Pleasant Heights, Bell Pointe and Carriage Creek additions.

These improvements are in place; however, lot sales have been few and far between. Failure to broaden the ownership base has forced Bell and his Darbe Development Co. to ante up most of the $685,000 annual property owner's assessment used to service the special improvement bonds.

The payments are current thanks to a $648,000 safety net. The bond trustee, State First National Bank of Texarkana, had to dip into this debt service reserve fund to make up for Bell's $300,000 shortfall this year.

Bondholders were formally notified by letter that Darbe Development Co. was not making its payments in a timely manner and the reserve debt service fund had not been replenished as required under terms of the bond issue.

Darbe Development is currently $970,000 in arrears on its scheduled 1989-90 payments. Two-thirds of that won't be officially declared delinquent until after Oct. 10 although the money was due in April.

Bell saved himself a few thousand dollars thanks to a provision that allows commissioners of special improvement districts to waive late penalties. Bell, C.H. Murphy III, and L.K. Moore Jr. are the commissioners for the Carriage Creek improvement district.

The next semi-annual bond payment is due Feb. 1, 1991. This deadline could be critical as lawyers and underwriters work to hammer out the details of a refinancing package to replace the initial bond issue. The deal has been in the works since late last year.

Flirting With Disaster

Friends describe Bell as a businessman who enjoys flirting with disaster. If Bell is true to form, he must be thriving on the adversity confronting his real estate holdings.

The pitiful sales performance of his three residential developments is exacerbated by Bell's own cash crunch. The stock market has taken his personal net worth on a four-year, roller-coaster ride as his Ensco holdings climbed to $70 million in 1986, only to plummet below $13 million today.

The market correction in October 1987 is the driving force behind much of that downward plunge. Bell has accelerated the descent by jettisoning beaucoup Ensco stock from his portfolio. He has converted thousands of shares into millions of dollars and reduced his stake in the company to about 8.7 percent these days.

Advisers told Bell to expect his three residential developments to sell out within five years, but that analysis has proven to be a fantasyland forecast. Only eight of the 235 lots in the three subdivisions have sold since coming on the market in 1988. About a dozen more are under contract, according to L.K. Moore Jr. of Darbe Development Co.

"Lot sales hadn't been as good as we would like," concedes Moore in a masterful stroke of understatement.

To date, homeowners have bought just six of the 81 lots in Pleasant Heights at an average price of $43,300 per lot.

And it wasn't until this year that the first two Carriage Creek lots sold for a total of $87,000, leaving 120 more lots. Significantly, none of the 32 pricey lots in the exclusive Bell Pointe, which carry the heaviest bond assessments, have attracted a buyer yet.

Supply And Demand

Why has Bell's development, once known as Ridgehaven Valley, sold so poorly? Supply and demand is one of the biggest reasons.

"There's at least a seven-year inventory of residential lots out there in the market," appraiser Lee Stephens remarks. "I've worked in Little Rock for 20 years, and I've never seen this much supply out there."

It's more cost efficient to put the improvements in place through one large improvement project, but it is also risky and requires staying power on the part of the developer. Bell's staying power is largely based on his Ensco holdings, which have been severely cut since 1987.

Critics say Bell put in too many lots and improvements too soon. Phasing in the development with 30-40 lots at a time would've been more expensive in the long run but would've helped lower Bell's exposure. It also could've helped create momentum with a limited number of lots available.

Price is another factor. Half-acre lots in Pleasant Heights have typically gone for $45,000 with about half paid up front. The balance is financed and spread out over 13 years to cover the costs for improvements, which run about $2,700 per year.

That compares with lots in nearby St. Charles and Longlea that sell in the $30,000-$35,000 range. Bell's lots are typically larger, and the terrain is often correspondingly steeper, which can add significantly to the construction cost of a home.

Some would-be homeowners, like George and M'liss Collins, have also shyed away from Bell's development because they were concerned about the financial stability of the project and what might happen to their ownership position if the bond issue disintegrates.

"My wife and I were going to put a sizable chunk of change down on a lot and home in Carriage Creek until we discovered there might be some problems out there because the developers are delinquent on so many lots," Collins states.

The overall setting in the improvement district and tight lending practices have made spec building practically non-existent.

When Melvyn and Darlene Bell first embarked on their buying spree in Pulaski County, they were partners with another Fort Smith son -- C. Randolph Warner, the CEO of Fairfield Communities. The Bells bought out Warner and his wife Barbara for $600,000 on April 11, 1986.

Before parting ways, Warner helped Bell assemble 390 acres in west Little Rock primarily through three transactions totaling more than $2.2 million:

* Jan. 5, 1984: A $1.3 million sale by Robert Allen Kaye and various Kaye family trusts.

* March 2, 1984: A $725,000 sale by H.C. and Elizabeth Johnston.

* Aug. 13, 1984: A combination cash/land swap with Metropolitan Trust Co. involving $188,000 plus 1.28 acres in Sherwood, now home to the Metropolitan Trust Building.

Besides the $6.72 million bond issue, Bell's property west of Napa Valley Road is carrying as much as $5.78 million in debt with three creditors.

The biggest is Central Trust Bank in Jefferson City, Mo., which holds a second mortgage on the 166 acres in the Carriage Creek improvement district. The loan has an outstanding balance last reported at $3.22 million guaranteed by the Bells and Darbe Development Co.

The Bells also signed personal guarantees with Ensco to secure a loan that had an outstanding balance of $1.67 million as of March 1, 1990. This represents a second mortgage on the undeveloped 228 acres west of the Carriage Creek improvement district and property in Hot Springs.

First Commercial Bank has two first mortgage notes with a total outstanding balance estimated at $895,000. Darbe Development Co. is on the line for $295,000, and the Bells are personally guaranteeing the balance.

Melvyn Bell is recognized as a risk-taker from way back. It will take years before he can really cash in on the development potential envisioned for his west Little Rock property.

This venture is taking him dangerously close to the brink of folly, and that's where Bell likes to travel, it seems. His admirers and creditors hope he just doesn't topple over the edge.

PHOTO : WELCOME SIGHT: Melvyn Bell would like to see more activity like this Carriage Creek residence. It is the neighborhood's only home currently under construction.
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Author:Waldon, George
Publication:Arkansas Business
Date:Sep 24, 1990
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