Hope for Chuckanut Ridge
Violations of the 1994 FDIC Order
Banking and real estate development are like oil and water; they don’t mix. Banking relies on a relationship business model designed to keep customers happy and loyal. By contrast, real estate development is a transactional business designed to make one-time profits for developers before they move on to another project. Real estate developers are comfortable creating enemies of local residents. Bankers are not.
For that reason, real estate development has long been considered as an “activity that is not permissible” for FDIC-insured banks. Banks can apply for an exception, and, in 1994, the FDIC approved Horizon Bank’s application to engage in real estate development activities subject to four conditions. The two most critical conditions are impacted by the bank’s Fairhaven Highlands development application.
• Condition 2: “That activities be limited to the development of real estate intended for single-family residential use;” and
• Condition 3: “That the applicant's aggregate investment in the activity at any one time not exceed 25% of its Tier 1 capital.”
It is clear that Fairhaven Highlands, a multi-family development, violates Condition 2. The original application proposes the construction of 558 multi-family units, or 76% of the 739-unit total. The other alternatives being considered propose the construction of either 688 multi-family units (93%) or 722 multi-family units (98%). Horizon Bank’s declared preference is to build 722 multi-family units. It would be hard to convince anyone - especially the FDIC - that the Fairhaven Highlands project is intended for “single-family residential use.”
• Conclusion: Fairhaven Highlands violates Condition 2.
Condition 3 is a moving target because the bank’s investment in the project and its Tier 1 capital are constantly changing. According to Horizon Bank’s June 30, 2009 quarterly report, its “real estate joint venture has a consolidated carrying amount of $27.2 million.” In other words, its investment in real estate development activities has mushroomed to $27.2 million as of June 30. According to the Horizon’s Uniform Bank Performance Report, its Tier 1 capital as of June 30 is $45.3 million. Therefore, the bank’s real estate investment now represents 60% of its Tier 1 capital (27.2 / 45.3), a far cry from the 25% limit imposed by the 1994 FDIC Order.
• Conclusion: Fairhaven Highlands violates Condition 3.
So, Horizon Bank has violated two key conditions of the FDIC Order.
Does anyone really care?
Well, apparently the FDIC does, and this is where you come in.
We have been told that FDIC attorney Jim Miller and the FDIC Case Manager Richard Evans “are in constant communication regarding Horizon Bank.” According to Mr. Miller, “the issues involved in this matter have been the subject of many discussions within the FDIC,” and the FDIC will “ensure that the units that may be ultimately approved by the city of Bellingham for construction on the site are, in fact, intended for single-family residential use and that the Bank remains in compliance with condition #2.” Additionally, the FDIC “will continue to closely monitor the Bank’s investment in this regard to ensure that the Bank remains in compliance with condition #3.”
In a recent email from Mr. Miller, he closed by stating, “We appreciate receiving your information.”
How you can make a difference
Every person who either opposes Fairhaven Highlands and/or supports the preservation of Chuckanut Ridge has their own personal reasons for doing so. These personal views need to be respected.
If you either oppose Fairhaven Highlands or support the preservation of Chuckanut Ridge – for whatever personal reasons you have – you can make a difference by focusing on this single issue.
Horizon Bank has violated two important conditions of the 1994 FDIC Order that allowed the bank – as an exception to standard banking law - to engage in the real estate development business. The FDIC has the authority – indeed, the responsibility - to order Horizon Bank to cease and desist from pursuing the Fairhaven Highlands development, a project that violates the 1994 FDIC Order.
It’s really that simple.
If you want to make a difference, I urge you to contact FDIC Attorney Jim Miller and encourage the FDIC to properly enforce the conditions of the 1994 FDIC Order. Let Mr. Miller know why you oppose this project and/or support the preservation of Chuckanut Ridge. Mr. Miller is very cordial and has expressed an interest in hearing from us.
Jim Miller’s direct line is: (415) 808-8175.
If you prefer to send an email (or would like to follow up by email):
Jim Miller’s email address is: JMiller@FDIC.gov
Richard Evans’ email address is: REvans@FDIC.gov.
For those who have wondered how you can make a difference, I hope you will.
Time is of the essence. Please call Mr. Miller today!