A bankruptcy case filed by a company affiliated with developer John Ritter shows another way to unravel the finances of busted real estate projects in the Las Vegas area.
B-PVL1, a limited liability company, on Monday filed for Chapter 11 bankruptcy with a prepackaged plan of reorganization for 354 acres of land in central Pahrump and water rights.
Prepackaged bankruptcies are financial reorganization plans that companies prepare in cooperation with creditors.
The land, which is used for dairy farming, was planned for residential development before the real estate bubble burst in Southern Nevada. A bankruptcy document identifies Ritter as a co-debtor in the bankruptcy case.
Ritter, chief executive of Focus Property Group, probably was the biggest private holder of raw land in Southern Nevada in 2008 when he stopped making payments on $470 million in loans secured by 4,800 acres.
To finance many of these properties, Ritter borrowed from hard-money lenders.
Builder's Capital, one hard-money lender, in 2005 originated a $29.9 million loan that is secured by the Pahrump property.
As a hard-money lender, Builder's Capital solicited money from individual investors and used the money to make loans to developers, like Ritter. Investors typically earned double-digit interest rates on their loans.
In this case, Builder's Capital pooled money from 136 investors to make the loan to the Ritter company.
The Pahrump land and water rights, which were collateral for the loan, could be sold now but would bring $3.5 million or less, according to an analysis by Valmount Capital for the debtor.
However, Valmount projected the property will be worth $33.5 million to $44 million in five to seven years.
Ritter devised a plan for holding the property for a few years until property values hopefully increase. The debtor proposes to turn over the property to the lenders for full satisfaction of the loan, rather than going through foreclosure.
Focus Property Chief Operating Officer Thomas DeVore said his company won approval for the proposal from more than 51 percent of the lenders and from lenders holding two-thirds of the loan.
Focus Property is asking bankruptcy Judge Linda Riegle to approve the reorganization plan.
A seven-member board will manage the company and contract with Ritter's company, Focus Property Group, to manage the property while investors wait for real estate to potentially appreciate in value.
Focus Property could profit from sale of the property but only after investors are first paid, DeVore said.
Focus Property may use similar bankruptcy filings to resolve loans in default on other parcels, he said.
"We're working with all of our different lenders to be sure they can get the best return on their loans," DeVore said.