The real estate meltdown in northwest Arkansas bloodied novice and experienced investors alike. Two central Arkansas development veterans were among the collateral damage in a $10.1 million can't-miss deal gone bust: John Flake and Andy Collins.
Collins acknowledges he should have done more due diligence, while Flake insists he was just a passive investor in the package of three apartment projects marketed toward Hispanics.
Flake, a well-established Arkansas developer, and Brandon Rogers, then an up-and-comer, put together the investment in more than 250 units near the Springdale Airport four years ago. They brought in a group of partners and joined them to collectively pony up $2 million.
That money, combined with $8.1 million in non-recourse financing, got the deal rolling with expectations the apartments would generate an annual pre-tax cash flow of $400,000.
"We all thought this was something our kids were going to be fighting over," Rogers said. "The market was hot and everything was working up there."
Instead of creating an investment legacy for their heirs, the partners struggled to keep the project at break-even. That led to the dismissal of the property manager, a lawsuit, counterclaims of mismanagement and a general bout of hurt feelings.
Today, the $8.1 million non-recourse loan package backing Strawberry Meadows (103 units), Crutcher Street (97 units) and Powell Street (53 units) is in default. Ownership of the apartments is in the process of shifting to a receiver, CW Capital Asset Management LLC of Needham, Mass.
"I'm embarrassed that I invested in the project," said Andy Collins, another real estate veteran and the largest investor in the deal. "It was pitched as one thing, but the bottom fell out very quickly. It became apparent the deal was never going to work out. I should've done more due diligence on my own, and instead I relied on others."
Bad Timing
The project loans went into technical default on March 4, when Brandon Rogers filed for personal bankruptcy. Rogers listed estimated assets of nearly $5.6 million and liabilities of more than $21.3 million.
[ Link to this article ]
