Brenwick Development Co. is suspending operations at the Village of West Clay mixed-use community in Carmel, claiming its lender won’t release the deeds on undeveloped land—halting about $7 million of sales in the company’s pipeline.
“We haven’t been able to do business since the end of September,” Brenwick CEO George Sweet told IBJ.
That’s when longtime lender BMO Harris Bank sold a package of loans, including Brenwick’s, to an affiliate of Wells Fargo Bank. Sweet said the new lien holder, a Texas hedge fund, won’t allow the developer to sell property.
“We had $7 million in presales coming forward, which they refuse to close,” he said. “This completely blindsided us.”
Brenwick filed a breach-of-contract lawsuit against both banks March 6 in Hamilton Superior Court, alleging that Wells Fargo has defaulted on obligations spelled out in two loan agreements the developer had with BMO Harris.
“When they purchased that debt, they were obligated to uphold our agreements,” Sweet said in a prepared statement. “Instead, they refused funding for us to operate our business.”
A representative from BMO Harris declined to comment on the suit. Wells Fargo did not return a call seeking comment.
Brenwick TND Communities LLC's lawsuit says its loan agreements with BMO Harris called for the bank to pay Brenwick a monthly stipend of $65,000 and provide additional funding for infrastructure costs. The loans were to be repaid with the proceeds from lot sales.
But when Brenwick asked for its October distribution—plus $151,150 for infrastructure—the new lender imposed additional conditions and restrictions, the lawsuit said, ultimately denying the request and halting sales. Sweet said the hedge fund refused to release lots unless Brenwick agreed to new loan terms, and those terms were not acceptable to the developer.
BMO and Brenwick collaborated "through a devastating real estate economic environment" to keep the development viable, the lawsuit said, and the lender knew "repayment would only occur if it was successful."
Brenwick "worked vigorously to save the community," according to the lawsuit. Its principals "worked for years without compensation."
But the lawsuit alleges BMO Harris "obscured its intentions and sold the loans to an opportunistic lender."
Sweet said Brenwick has returned earnest money to would-be buyers until it can resume operations. Single-family, multifamily and commercial lots are all affected.
The 680-acre community is more than 90-percent finished, so Sweet said he isn’t worried about its long-term survival. He can’t say the same about Brenwick, which must sell the land to pay its debt.
“It’s frustrating to not be able to do business,” Sweet said.
The financing glitch certainly affects the momentum that built last year for the project. The Builders Association of Greater Indianapolis revived its Home-A-Rama showcase there in September, highlighting four West Clay builders and spurring more than a dozen lot sales, Sweet said.
Houston-based David Weekley Homes bought 25 lots at the Village of West Clay without incident in 2012 and 2013 and has an agreement with Brenwick to acquire another 14. But it can’t close on those deals until the lender releases the liens.
Short delays are relatively common when loans change hands, David Weekley Homes’ Area President Rick Moore said in late January. At the time, the builder had offered to return deposits to two buyers (who didn’t want them back).
Ryland Homes, meanwhile, is waiting for a resolution to pull the trigger on a townhome development in West Clay. It didn’t have to return deposits, since it doesn’t typically pre-sell units, said Indiana Division President Craig Jensen.
“We can’t sell anything we don’t own,” he said.