PALMDALE — Only two months after taking control of a controversial planned community in Palmdale, a Colorado-based developer has filed for bankruptcy, listing nearly $65 million in debt.
But developer John Musick said Monday that the Oct. 30 filing was designed to stave off a second foreclosure on the storied project, and was not an admission that efforts have again failed to turn the barren strip into one of the largest new housing developments in the state, with a planned 7,200 houses.
"Despite the bankruptcy, we're moving forward with all due speed to build houses," said Musick, head of Ritter Ranch Development LLC, the third group to own the property since the project sprang onto the drawing board in 1989.
"The purpose of the bankruptcy was to reorganize the financial landscape that we inherited, under the sound supervision of an experienced bankruptcy judge, [and] to bring stability and integrity to the deal."
And even though not a single home has been built in the nearly 10 years since the project was first proposed, Musick is confident that this time construction will proceed.
"We will have new homes up by the start of the millennium," he asserted, taking a break from tending the horses on his Aspen ranch. "We will start construction in the first half of 1999 and we'll have homes up in the second half."
Said Musick's attorney, David Neale: "We're closer to getting it done now than anyone has been in the history of the development."
And that is a lot of history.
The first firm with plans for the nearly 12,000-acre site was the Ritter Ranch Development Co., a group backed by former Lorimar Telepictures executives Merv Adelson and Irwin Molasky. They envisioned a planned community of 7,200 homes, with schools, golf courses and gorgeous mountain views.
In real estate, as in Hollywood, timing is everything.
The developers unveiled their plans just in time to watch the real estate market head south. Months after the property went into foreclosure in January 1997, the developers filed for Chapter 7 bankruptcy, essentially turning the land over to the lender, New York-based Bankers Trust Co.
"The market just wasn't there when the previous developers were ready to move on it," said Palmdale City Manager Bob Toone. "The marketplace has changed. It's gotten better. That's the major difference now."
The property was still in foreclosure when Musick's group purchased it in August for an undisclosed amount of cash plus the assumption of $57 million in debt. Musick said one of his first acts was to pay the city of Palmdale the $472,385 owed on $50 million in Mello-Roos bonds issued by the city to fund public improvements.
He said he's also paid $176,012 to the current deed holder, RPC Liquidating Trust, in part as a "forbearance fee . . . to get them to go along with us" and not begin foreclosure proceedings. It didn't work.
"We were not able to reach agreement on the balance," said Musick, adding that the two sides disagree over exactly what the balance is. "So we filed Chapter 11 to stave off foreclosure."
Michael Criste, an attorney for the trust, did not return phone calls.
In addition to the $648,000 spent to pay overdue debts, Musick, who has raised an estimated $30 million for the project, said he's spent "millions for engineers, planners, advertising, architects."
Toone said the city of Palmdale has used the bond funds to complete a number of public improvements including a dam, which has already provided flood control improvements to downstream residents, sewer lines that are as yet unused and a bridge that "right now looks like a bridge to nowhere, but will be the main entrance to the property."
The city faces no financial risk even if the project never gets built, according to Toone, who stressed that Musick's group is responsible for paying off the bonds. Musick said that of the $50 million raised, $9 million was refunded and $33 million has been spent, leaving a working balance of $8 million.
Bill Ramsey, Palmdale's head of finance, said the developers will owe a $1.7-million bond payment on March 1 and $2 million more in September.
"When you look at the whole year, that's a pretty good chunk of change," said Ramsey, who's taking a wait-and-see attitude about the latest efforts to develop the land. "The developer has a lot of things to do between now and March. He's going to have to really step up to the plate and move fast.
"So we'll see," Ramsey added. "I'll let him show me. I'm crossing my fingers."
Musick, whose business plan calls for $250 million in profit over the next 17 years, does not see the long-delayed project as a gamble.
Investors are "lining up," he said. "They see the vision and the wisdom. Everybody knows there is a great future for Palmdale.
"I've got the cure for snake bite," he added. "You suck out the poison, swallow it and go on down the road."