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The $6.72 million anticlimax.

The Fate Of Another Melvyn Bell Dream: They Held An Auction And Nobody Showed

Courthouse regulars and real estate veterans touted it as the first foreclosure of a special improvement district in Arkansas history.

A $6.72 million bond issue was in default, and more than 200 residential lots in three west Little Rock subdivisions developed by Melvyn Bell were up for auction at the Pulaski County Courthouse.

Many thought it would be a lively affair with real estate bargain hunters crowding the courthouse.

But last week's event failed to live up to expectations.

Less than a dozen people showed up for the special two-day sale Nov. 25-26. Most were spectators.

Like other foreclosure sales, the terms of the auction were cash in hand, cashier's checks or any form of certified funds. All payments were due by 2:30 p.m. the day of the sale.

In the event of non-performance, property would be resold at 3 p.m.

Such instructions were unnecessary when the Bell Pointe and Pleasant Heights subdivisions were put up for bid on the first day of the sale. There were no takers, and all lots reverted to Carriage Creek Property Owners Improvement District No. 639 of Little Rock.

It's a Monday at the Pulaski County Courthouse.

A few people stop to see what is going on in the rotunda before going about their business.

Some prospective buyers have plat maps in hand and whisper among themselves. Yet they remain silent when it comes time to bid.

Most of the lots have three years of delinquent assessments due, in addition to late penalties adding up to thousands of dollars.

The other lots have two years of assessments and penalties outstanding.

In each case, the district places the minimum bid for the amount owed.

"Do I have any other bids? Going once. Going twice. Going three times. Sold to the district."

The lone voice of Alice Holcomb, Pulaski County's chancery clerk, echoes through the marbled corridors of the courthouse as she reads the roster of lots.

The hour-long litany halts only when Holcomb pauses to sip iced tea from a Styrofoam cup.

"You did a lousy job of selling those lots," jokes Pat Bell, a vice president and trust officer with State First National Bank of Texarkana, the trustee of the bond issue.

"I know," Holcomb replies. "I could have described each of the lots and had a slide show."

Tuesday isn't much different.

Lots in the Carriage Creek subdivision go on the auction block with equal fanfare.

Total elapsed time: One hour, same as the day before.

Only three lots are sold. The balance revert to the improvement district.

The lack of interested bidders comes as a surprise considering the number of inquiries prior to the auction.

The telephone rang off the wall at State First National Bank and the Little Rock law offices of Simpson & Graham, which represents the improvement district.

"To be a complete non-event was kind of a shock," Pat Bell says.

"At least we don't have to foreclose to collect any of those other assessments," says Little Rock attorney Greg Graham.

Only one of the prospective bidders staked a claim.

L.K. Moore Jr., a commissioner in the improvement district, bought two lots adjoining his home in the Carriage Creek subdivision and a corner lot down the street.

"|Monday~ was the real bargain," Moore says of the more valuable lots in Bell Pointe and Pleasant Heights. "People thought they were going to get a steal on these lots, but that's just not going to happen.

"This is as cheap as it's going to get."

Moore's combined bids of $12,655.59 on three lots were the only buys. That represents $1 over and above the past-due property assessments and penalties for each lot.

Someone could have picked up all the lots for about $1.6 million in unpaid property assessments and late penalties.

The payments don't stop there, though.

The way the bond issue is structured, landowners must pay the cost of the streets, storm drains, utilities, etc. over several years.

The price of the improvements was prorated to each of the 235 lots in the district. The arrangement was to have been a major selling point.

Property owners could buy a lot with only a small down payment and carry the balance in the form of annual assessments. The assessments would go toward retiring the improvement bonds.

"Most of them would have liked to have paid off in a lump sum, but I wouldn't touch it," says William H. Owens, a Pleasant Heights home owner. "The way the bond issue is set up, they can't do that."

Melvyn Bell must have misunderstood if he heard a voice telling him to build the subdivisions and the buyers would come.

Darbe Development Co., which was led by Bell prior to his divorce this year, was hoping for an 11-year pay out of the bonds.

"That's really the fly in the ointment," State First's Pat Bell says. "If all the lots had sold and the assessments were brought current, the term of the bond payments would have been much shorter."

Poor lot sales caused by ineffective marketing, coupled with Bell's financial difficulties, led to the default.

The fortunes of Darbe Development went along for the ride when Bell's net worth took a plunge. The company was not helped by the plummeting stock price of Bell's once huge holdings in Environmental Systems Co. of Little Rock.

Ensco shares worth as much as $70 million in 1986 have evaporated through devaluation and forced sell-offs.

The last names are the same, but Pat Bell is no relation to the businessman whose millions launched the Carriage Creek project.

The former chairman and CEO of Ensco is no longer affiliated with the development. Bell controls 231 undeveloped acres to the west of Carriage Creek, however.

Big Dud

Although the Carriage Creek auction was anti-climactic, the proceedings were noteworthy.

The foreclosure could have taken at least two more years to run its course had it taken place prior to legislation enacted this year by the Legislature.

"This is the first foreclosure of a special improvement district," Graham says. "Up until |the legislation~, the land was sold through the state land commissioner's office for back taxes."

The foreclosure placed First Commercial Bank of Little Rock in an unusual and unpleasant position.

The bank held a $900,000 first mortgage on the Carriage Creek land. The unpaid balance was $376,000. First Commercial's attorneys tried unsuccessfully to protect the claim when the bond-holders triggered the foreclosure.

The 1986 mortgage predates the bond issue. However, Pulaski County Chancellor Vann Smith ruled that improvement bonds take precedence, no matter what the chronology is.

"As other bankers hear of this, I'm sure they'll be more conservative," Graham says.

First Commercial may have recourse against Darbe Development, Melvyn Bell and his former wife, Darlene, as guarantors of the loan.

With the foreclosure sale completed, the Bells and Darbe Development are no longer property owners in Carriage Creek.

The improvement district will have to elect at least two new commissioners.

Melvyn Bell and C.H. Murphy III, who helped get west Little Rock's Chenal Valley development off the ground, were original commissioners with L.K. Moore Jr.

Moore may remain as a commissioner after increasing his ownership stake with the addition of those three lots.

Following the changing of the guard, the commissioners will be responsible for developing a plan to market unsold lots in conjunction with bondholders.

There are no immediate plans to alter the lot prices that were read at the auction.

"That's the least the bondholders have agreed to sell the lots for," Pat Bell says.

Changing property assessments or waiving late penalties would require bondholders' approval. There is no movement to modify the terms of the bond issue, although bargain hunters believe some discounting is in order.

Will the uncertainty surrounding Carriage Creek dissipate in the wake of the foreclosure?

Many believe it will take marketing creativity and flexibility on the part of bondholders. Some of the original selling points have become liabilities rather than assets.

"I was told the special assessments were tax deductible," Owens says. "That followed through the closing and a session with the IRS."

Owens later learned that was not the case.

The annual assessment is labeled a real estate tax. However, only the portion of the assessment that represents interest payments is tax deductible.

That interpretation erased one of the main selling points.

Of course, that wasn't the development's only attribute.

The lots are in the middle of growing west Little Rock. The terrain is dominated by rolling hills and covered with timber.

Melvyn Bell chose to develop 166 acres at once to minimize the long-term cost of improvements.

That left him with more than 200 lots to sell through the installment plan in a weak real estate market.

With the benefit of 20-20 hindsight, some wonder if Bell couldn't see the forest for the trees.
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Title Annotation:failed Carriage Creek Improvement District auction in Pulaski County, Arkansas
Author:Waldon, George
Publication:Arkansas Business
Date:Dec 2, 1991
Previous Article:Coming down the stretch.
Next Article:A bitter harvest?

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