GreenHawk snags ailing subdivision

When an unoccupied house burned to the ground in L'Hermitage at Beaver Creek last month, it was the latest indignity to befall the Apex subdivision.

Abandoned by its original developer and foreclosed on by the bank, L'Hermitage had become a neglected suburban carcass with a ridiculous name.

But six weeks later, L'Hermitage has new life and a new name because of GreenHawk Corp., a Raleigh firm that specializes in taking over troubled properties.

During an auction at the Wake County Courthouse, GreenHawk cast a winning bid of $5 million for the 23-acre development. Among the company's first moves was to rename the project Olive Chapel Park.

"We'll try and purge the L'Hermitage name from the Triangle dictionary," said Craig Briner, GreenHawk's president.

GreenHawk officially formed in 2002, but its partners have been turning around distressed properties for 20 years. The company has kept a low profile in the Triangle in recent years as it focused on projects in Charlotte and Charleston, S.C.

Briner said the company targets projects that are "broken," either financially, environmentally or structurally.

The original developer of L'Hermitage, New Jersey-based Diversified Communities, walked away from the project in 2008 after it was plagued by slow sales and construction delays. With only two occupied homes and a dozen other half-finished houses, L'Hermitage quickly fell into disrepair and became a poster child for the ailing housing market.

GreenHawk has been eyeing L'Hermitage for a year, Briner said. The company thinks the site's proximity to other residential developments and the Beaver Creek Commons shopping center makes it attractive to a range of buyers.

"To us, that is really like an infill site," Briner said. "I know that might sound odd."

The original plan for L'Hermitage was to have 33 homes and 75 townhouses. GreenHawk plans to keep the lot lines the same but offer smaller and more modestly priced houses and townhouses than Diversified planned.

GreenHawk, which builds houses under the Live Oak Homes brand, expects work on the partially built L'Hermitage houses to begin next week. It will begin offering its own homes early next year.

The $5 million that GreenHawk paid for L'Hermitage was about $1 million more than Diversified paid for the land in late 2006. But Diversified, which had a credit line from Bank of America for up to $21.75 million, spent considerably more to divide the property, run water and sewer service to the lots and build what's there now.

Although GreenHawk has been doing more deals involving financially distressed properties, Briner said he initially expected more to have come on the market by now. "It's just been a more deliberate sort of pace in what's occurred," he said.

In the Triangle, there have been just a few high-profile deals, such as SunTrust Banks paying $32.24 million in March for unsold and undeveloped portions of Hasentree, a massive golf community in northern Wake County. The developer owed about $39 million.

Real estate analysts think it's just a matter of time before more residential and commercial properties are forced into the market.

According to Real Capital Analytics, a New York research firm, there was $140.7 billion in distressed apartment, office and industrial properties in the U.S. as of Oct. 1, and only about $15 billion of it had been refinanced or sold to a financially stable third party. "There's really a glut of properties that are in trouble, and it's all piling on top of each other and not leading to a lot of resolutions," said senior market analyst Ben Thypin.

Thypin said many banks are extending loans with the hope that the market will improve. Even banks that have foreclosed on properties are often keeping them on their books, because they're reluctant to auction them off in this market.

"There's a saying that's going around the industry right now called extend and pretend. The banks can do that for a long time," Thypin said. "With the fragility of the banking system right now, no one's really telling them not to."