New developer to run Stratton Flats
August 13, 2010
EAGLE, Colorado – A new developer is acquiring Stratton Flats, the floundering housing development in Gypsum that was partially funded by the county.The county commissioners are scheduled Tuesday to transfer the project to Stratton Flats Homes LLC, an entity created by the Denver-based Pauls Corporation. The Pauls Corporation is borrowing $3.5 million to build infrastructure as their ticket into the deal.Stratton Flats is being transferred away from Scott Russell’s Aspen-based Meritage Co.”They’re not buying it from Russell or anyone else. They’re just stepping as the new developer,” said Bryan Treu, Eagle County’s attorney.Russell will walk away, but he’s not walking away with any money.”We just needed to hit the reset button with a different developer,” Treu said.
Eagle County taxpayers are $4.5 million deep in Stratton Flats because in January 2008, the county commissioners at the time – Sara Fisher, Peter Runyon and Arn Menconi – spent the money out of a facilities fund. They did not actually appropriate the money until February 2008, and formed the county’s housing authority in March 2008.While the county commissioners got Eagle County taxpayers involved for $4.5 million, Colorado Business Bank is in for more than four times that.Colorado Business Bank bankrolled Russell for $20 million, according to county documents. Russell is in default in his loan to Colorado Business Bank, county officials said.The Pauls Corporation is borrowing its $3.5 million at 10 percent interest from Ironwood Capital, according to the agreement.Ironwood Capital now takes the first place in the repayment line.Colorado Business Bank is losing at least $2 million in letting Russell walk away, according to the transfer agreement. The bank is restructuring Russell’s $20 million loan down to $18 million, and breaking it into two parts – $12 million at 5 percent interest and $6 million at no interest.Colorado Business Bank is second in the repayment line.Both the loans to Ironwood and Colorado Business Bank are scheduled to be repaid by August 2015.If Eagle County’s taxpayers are ever paid back their $4.5 million, it will be after those two loans are repaid. Taxpayers were supposed to earn 6 percent interest on their $4.5 million, and that’s still part of the deal, the agreement says.For the county to recover any of its $4.5 million or be paid its 6 percent on that money, Stratton Flats units have to sell, said Alex Potente, Eagle County’s housing director.
“The project has not proceeded as anticipated,” the county’s transfer agreement says, in what may be the most remarkable understatement of this election year.Stratton Flats is located near the end of the Eagle County airport’s runway in Gypsum, and Gypsum is the county’s slowest real estate market.Eagle County has seen 345 foreclosures this year, well ahead of last year’s pace that resulted in 452. Of the 345 this year, 95 are in Gypsum, according to the Eagle County Treasurer’s report Friday.One Stratton Flats house has sold in the last year, a $379,494 government-to-government deal. The Eagle River Water and Sanitation District negotiated a deed-restricted purchase for one of its staff members. That deal closed Sept. 21, 2009.On the Stratton Flats website Friday, three bedroom homes were listed for $325,000 on the open market.The county commissioners could artificially bolster Stratton Flats sales. The transfer agreement allows them to buy additional Stratton Flats homes on speculation as fast as the Pauls Corporation builds them, then deed restrict them if they choose.You can buy one of the county’s affordable-housing units for 1 percent down. It has to be your primary residence, and you have to work in Eagle County at least 30 hours a week.There’s no price cap. If real estate prices climb again, so do Stratton Flats home prices.
The commissioners say that the $4.5 million was meant to buy their 113 deed restrictions. That’s around $40,000 per deed restriction.In their original agreement with Russell, the county’s 113 deed restricted homes were to be sold below market prices with price increases capped at 3 percent per year.Originally, two-thirds of Stratton Flats’ 330 homes fell under deed restrictions, either from the county or the town of Gypsum.Now, only one-third do. The other 220 homes will be sold on the free market.Gypsum doesn’t have any cash in the deal. The town waived about $2.5 million in water and sewer tap fees, as part of its affordable housing program.Now, the town can start collecting those fees.”The county is still in. No one sent us a refund when they bought it,” said Sara Fisher. “The timing is what derailed it, and we’re not the only developer who faced challenges when the economy changed.”The commissioners had no business in real estate development, says Claudia Alexander, who’s opposing Fisher for county commissioner in the November election. “I don’t think the commissioners had the taxpayers’ best interests at heart when they made the deal for Stratton Flats,” Alexander said. “They far exceeded their powers as outlined under the Colorado Constitution. It was the largest insult to the people of Eagle County that I’ve ever seen. They did this, then turned around and laid off dozens of people.”The Pauls Corporation is rolling into Gypsum in a big way. They also bought Sky Legend, a residential area above the Gypsum Creek Golf Course. “We are committed to the project and excited about the opportunity to work with the town of Gypsum and Eagle County to successfully complete construction and bring much-needed workforce housing to the community,” Brian Pauls said in a written statement released Friday.
Stratton Flats has always struggled. The project was submitted to Gypsum at the same time as the Tower Center, a proposed shopping center in Gypsum that has never gotten off the ground.Stratton Flats was floundering when the county commissioners poured in $4.5 million to keep it afloat.Some of the county’s $4.5 million paid off one of Russell’s original investors, Joseph Freed & Associates, a Chicago real estate development company. The project was sinking when the county got involved, stepping in front of some private development companies that were trying to cut a deal of their own, according to one of those developers.