PENDER COUNTY — A rarely used court order has produced a concentrated set of facts, agreed to by both parties, that show local developer Raiford Trask, Jr. misinformed a group of investors about paying development costs through various collateralized bank loans for the long-delayed Blake Farm development in Scotts Hill.
The case involves a dispute between Trask and a group of landowners organized under a company called NDCO, who had partnered with Trask to create Pender 1164, LLC for the purpose of developing the namesake 1,164 acres of land on the west side of Highway 17, just north of the New Hanover County line.
Each side owned a 50-percent interest in the mixed-use project; it was agreed that Trask would develop the land and recoup his expenses, then both sides would split the net proceeds.
But when Trask realized development costs would be higher than anticipated, he pursued multiple bank loans without informing the landowners that he was collateralizing the land to do so, according to court documents.
Litigation commenced between the two parties in May of 2017 — roughly six years after the two sides first began formal discussions — when Trask filed a lawsuit against NDCO declaring a “deadlock” that had resulted from a defaulted loan by one of NDCO’s members and from an unwillingness to work towards a resolution.
NDCO was spawned from a prior group of investors financed by Sandy and Tim Christian and her father Al Eide, according to court documents. When the market sank during the recession of the late 2000s, Christian had accepted a deed on the property in lieu of its foreclosure, then joined an adjacent group of property owners to form NDCO.
In January 2018, NDCO countersued, alleging Trask had carried out contract fraud and did not in good faith pursue the development of the property.
Last November, Superior Court Judge Michael Robinson issued an order called Rule 56(d) to narrow down the issues to a set of undisputed material facts established for trial. Robinson referenced North Carolina Civil Procedure Vol. II to explain why the rule was not often used in North Carolina courts.
“The procedure involved is so cumbersome that it is rarely utilized by the trial bench. Trying to get counsel to concede areas of the case that are not in dispute is a difficult if not unrealistic task,” Robinson cited from the book.
Michael Cook, an attorney in Colorado Springs and a member of NDCO, said Robinson’s ruling helped the investors’ case.
“We are thankful that this order will significantly streamline the evidence that needs to be presented at the trial of this matter, and believe that it confirms the facts as we have always believed and contended them to be,” Cook said.
Cook said last year that members of NDCO invested more than $16 million in the project.
Trask did not respond to a request for comment sent last week.
From spring to fall in 2019, each side submitted their own statements of “uncontroverted facts” and ensuing cross-motions, and from those came a whittled-down list of 56 facts in Pender Farm Development v. NDCO that are undisputed in the court record.
Development financing on the hush
Author’s Note: The following summary comes from Judge Robinson’s ruling, unless otherwise noted.
Trask’s 2011 website advertised a “full range of development services.” He was approached by Steve Shuttleworth, a developer and current councilman for Carolina Beach, about involvement in a development project. Shuttleworth had been a part of a group that owned property including the 1,164 acres now owned by Pender 1164.
However, the property was more “hydrologically complex” than Trask’s previous projects. Although Trask agreed to pay for pre-construction development costs, during a period of due diligence, “Trask realized that the costs of development would be more expensive than anticipated and he did not want to ‘pay any cash out of [his] pocket,'” according to a deposition of Trask.
But Trask did not inform Shuttleworth, Cook, or any member of the investment group that the deal’s financial structure must change because of increased development costs, and no written communications prior to the signing of the operating agreement demonstrated that.
A new five-phase development entitled Blake Farm was approved by Pender County in July 2014, consisting of nearly 3,000 residential units and 250,000 square feet of commercial space, according to the county’s planning department. Years before he pitched the project to Trask, however, Shuttleworth’s group had performed environmental assessments of the property — which at the time encompassed a total of 1,800 acres — that led them to believe only 2,400 units could be developed.
Trask redesigned the Blake Farm project in the spring of 2015, but after bidding out the first phase of construction he again realized costs were higher than expected — “extremely high, say $10,000 a lot over what we needed to be,” according to Trask’s deposition.
But again, between the signing of the final operating agreement and Trask’s redesign in 2015, Trask made no mention of a need for a development loan.
The payment of land entitlement and development expenses were outlined in the operating agreement. Christian’s accountant said his understanding of the agreement was that the land would be developed by Trask, and when it was sold, Trask would receive his costs back first and the remaining net proceeds would be split between Trask and the landowners.
Additionally, Shuttleworth’s own understanding of the operating agreement was that Trask “was to pay all the development and entitlement costs, be reimbursed for them, and then everything was to be split 50/50,” according to a deposition of Shuttleworth.
“Trask never informed Sandy Christian that Trask [and his company Pender Farm Development] would have no obligation to pay for any entitlement and development expenses,” according to a deposition of Christian.
Task paid $555,000 in development costs up until October 2016, providing quarterly reports to NDCO. But no mention was made in those reports that development relied upon Trask obtaining a loan and securing it “with as much of Pender 1164’s property as a bank may require,” according to Judge Robinson.
Collateralizing the land through multiple loans
In January 2016, Trask asked Robert Alexander, CEO of Stockmens Bank in Colorado Springs, about receiving a subordinated loan — one that is paid off only after other lenders are satisfied.
Meanwhile, South State Bank, based out of Columbia, South Carolina, was informed by Trask that he was offered a 50-percent stake in Pender 1164, provided that he develop the land. He also informed the bank that Stockmens would be paid only after South State Bank was paid in full.
Cook told Trask that “he did not see how Stockmens Bank would sign off” on providing subordinated debt. (Both Cook and Stockmens are based in Colorado Springs.)
“South State Bank knew that the proposed Blake Farm project was the largest single-family residential project that Trask had been involved in, which was one of the reasons it required Raiford Trask, Jr. to guarantee the loan,” Judge Robinson states.
He goes on to say there is no mention of any agreement with NDCO of any requirement that Stockmens would subordinate a loan collateralized by the land.
“Trask could have obtained financing for PFD without using Pender 1164’s property as collateral, but Trask stated it was ‘outside of our risk/earnings ratio to do so,'” Robinson states.
Trask declared a deadlock on the development in the fall of 2016, after which he sought another loan from the Bank of North Carolina to develop 88 lots, 50 undeveloped lots, and Blake Farm Boulevard — the development’s main entrance from Highway 17. He also continued to develop the property for approximately one year after declaring the deadlock.
Trask informed the bank of “NDCO’s problem with Bank of North Carolina’s collateral requirements.” The loan proposal from the bank required 139 acres of collateral, more than the area that would be developed.
“Bank of North Carolina’s primary source of repayment for a loan was to be Pender 1164’s property and the sale thereof, and not the resources of Trask, as a borrower,” Judge Robinson states.
The judge also states that a cost-sharing agreement for the construction of Blake Farm Boulevard, designed to pass through the retail portion of the project — of which Cook, Christian, and other NDCO members were invested in — was in dispute.
“Trask has never contributed the property that comprises the access to Pender 1164, but stated that it was a value secured for the benefit of Pender 1164,” Robinson stated. “The access to Pender 1164 is not currently a capital contribution of PFD.”
A trial is expected for the first week of April, according to Cook, although a specific court date has not yet been scheduled.
Send tips and comments to Mark@Localvoicemedia.com or (970) 413-3815