Focus proposes payment plan to resolve loan troubles

Focus Property Group, which last month stopped making interest payments on $470 million in loans secured by 4,800 acres, is proposing a deal that would let the developer withhold interest payments for three to six years.

In letters to investors in short-term mortgage loans, Focus asked lenders to forbear interest payments for three years with two possible extensions of 18 months.

During that period, the interest rate being earned would be reduced to 6 percent from 11 percent to 12.5 percent as set up in loan documents, said Focus Property CEO John Ritter.

Focus Property would sweeten the deal by making the previously skipped February interest payment to lenders who agree to his proposal, Ritter said.

Ritter said he sent letters to all private lenders who have clients with Focus Property loans, but Ritter said the proposal is not final and is subject to further negotiation.

Focus Property borrowed money from private lenders, sometimes called hard-money lenders, who solicit money for the loans from individual investors. Investors are generally attracted to such loans by their double-digit interest rates and the relative security of holding real estate as collateral.

In early February, Focus Property said it was stopping interest payments on notes secured by land in the Las Vegas Valley, Pahrump and Victorville, Calif., because of the real estate market bust. Ritter said there are about 3,000 individual investors in the private loans.

Some lenders, who are owed $30 million, have stopped negotiations, he said. But lenders holding the majority of the loans continue to seek compromise, Ritter said. He expects some of the lenders that are not negotiating to post default notices later this week.

Separately, Focus Properties continues to make payments on another $150 million in loans from commercial banks. Negotiations are under way with the banks, Ritter said.

In a Feb. 8 letter to Clayton Mortgage & Investment, Ritter explained his proposal to private lenders.

"The forbearance (of interest payments) is structured to keep Focus a viable company so that it can continue to manage its projects, which is crucial to the long-term value of the collateral for the loans," Ritter wrote.

"While it has been widely expressed that the real estate market is in the deepest downturn since the Great Depression, we nevertheless believe in our projects and our portfolio and have confidence that the market will make a strong recovery," Ritter wrote.

"In Las Vegas, over $40 billion will be spent on resort and casino development and 50,000 new hotel rooms will be opened over the next four years, resulting in significant job creation and job growth," Ritter said.

In the letter, Ritter said investors would not bear the cost of foreclosing, paying property taxes and getting zoning changes -- if they agree to his proposal.

Ritter said he has assembled parcels of real estate that have more value as a whole, than if they are broken into pieces through foreclosures.

The letter doesn't mention bankruptcy as a possibility, and Ritter said he doesn't plan to seek bankruptcy court protection from creditors. But Ritter said the company could be forced into bankruptcy, which could be costly and could result in delays.

Clayton Mortgage President Laura Lychock advised investors that Clayton executives "believe this proposal is in the investors' best interest."

David Goldwater, president of Goldwater Capital Nevada, complimented Ritter for seeking to resolve problem loans while some borrowers "will not work with you and simply walk away." Goldwater Capital is one of numerous private lenders which brokered loans for Focus Property.

Two sources, who asked to remain anonymous, suggest that Ritter's proposal is not a good deal, and the lenders should foreclose.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or (702) 383-0420.