March 30, 2014 Updated: March 30, 2014 at 10:45 am
Colorado Crossing is at a crossroads.
The ambitious 153-acre mixed-use project on Colorado Springs' far north side was supposed to be developed with 1.6 million square feet of stores, restaurants and offices, 1,600 residences, a 14-screen movie theater complex and a water park. Construction began in 2007 and buildings began to rise on the site, southeast of InterQuest and Voyager parkways.
But the project's developer ran out of money, the recession hit and worked stopped a year later, leaving the buildings partially finished.
Contractors and subcontractors filed roughly $26 million in legal claims seeking payment for work they had done, and the developer filed for Chapter 11 bankruptcy protection in February 2010.
Colorado Crossing's buildings and surrounding land have stood idle ever since - a testament to one of the city's biggest-ever real estate flops.
Now, after a bankruptcy that's gone on longer than those of General Motors and Chrysler, a court-appointed trustee who's authorized to make key decisions on the failed project has submitted preliminary proposals that could lead to a reorganization plan to revive Colorado Crossing. Those proposals were submitted to a bankruptcy court judge in Denver this month.
Obstacles remain, however, and changes are likely before any final plan is approved.
But if the bankruptcy judge gives his OK in the next several months, work would resume on the unfinished buildings and they'd be sold and/or leased, while undeveloped land would be marketed for sale. Contractors, subcontractors and other creditors would receive some - but not all - of what they're owed from the sale proceeds, although those payments would come over an extended period of time.
"The goal here is to bring this project back to life and move it forward," said trustee C. Randel Lewis, of Denver-based Western Receiver, Trustee & Consulting Services Ltd.
According to Lewis, and based on bankruptcy court filings, a plan to revive Colorado Crossing would work like this:
- The Colorado Crossing project - land and buildings - would be conveyed to a creditors' trust, which would be made up of contractors, subcontractors and all other creditors. The trust would contribute the property to a still-to-be-named, newly formed limited liability company.
The property includes 140 undeveloped acres; a four-story, 110,000-square-foot office building that was about two-thirds complete; a pair of two-story, 15,000-square-foot office and retail buildings that also were about two-thirds finished; the movie theater complex that was about 85 percent finished; and a 1,000-space parking garage that was 90 percent finished. The land is valued at $10 million and the buildings at $5 million.
- ITG Taxable Fund LLLP, a Florida investment firm that's financed real estate development deals and worked on troubled projects, would lend $5 million to the new limited liability company and purchase 20 percent of the company for an additional $3 million. The loan would be used to fund development operations related to Colorado Crossing and to pay administrative expenses and priority claims tied to the bankruptcy. ITG would hold a first lien on the Colorado Crossing property in exchange for its loan.
ITG officials declined to comment.
- ITG plans to hire Scott Smith, former head of Briargate developer La Plata Communities, as manager to lead Colorado Crossing's development. He'd also become a 10 percent owner of the limited liability company.
Smith is a longtime, respected member of the local real estate community who now runs his own real estate development and financial consulting firm. A certified public accountant, he worked with the founders of the 10,000-acre Briargate master-planned community and subsequent owners in development of the property for nearly 30 years.
Smith declined to comment, other than to say he's working with Lewis on a possible role in the resolution of the bankruptcy.
- The new limited liability company would work to complete the buildings and develop the surrounding land, selling off chunks to other users and developers. Sale proceeds would go to first pay off ITG's loan, and then pay creditors.
In a letter that accompanied a bankruptcy filing, Smith estimates ITG's loan would be repaid in three years.
Also in his letter, Smith estimates that Colorado Crossing's development would take six to seven years after the new company acquires the property.
He outlined several potential uses for the property, including a 40-acre portion developed with two to four apartment projects totaling 675 units; another 40 acres developed for 330 townhomes and patio homes; a 15.9-acre commercial site that could be developed with restaurants, convenience stores and other commercial uses; and a 15.2-acre site for office or commercial uses.
Of the existing buildings, Smith said, a Springs software company has shown interest in taking over the entire fourth floor of the 110,000-square-foot building. That could be the start of turning the building into a software campus, Smith said.
The new company also would work to identify additional tenants and possibly bring in a development partner to complete the building.
Strategies for disposing of all the existing buildings range from selling them "as is" to partnering with investors and/or lenders to make minimal improvements or complete and lease them.
Colorado Springs developer Jannie Richardson, whose SRKO Family Limited Partnership was the developer of Colorado Crossing and the entity that filed bankruptcy, would have no ownership of the property and no role in its future development.
Richardson also filed a personal bankruptcy in conjunction with SRKO's bankruptcy, and several of her business properties not connected to Colorado Crossing were auctioned last year as part of her financial troubles.
Richardson declined to comment.
Even as he seeks a resolution to the Colorado Crossing mess, Lewis cautioned there's far to go.
A series of hearings have been scheduled over the next few months, during which creditors and Richardson can challenge Lewis' proposals. Lewis said he also expects changes to what he's proposed.
Assuming the current schedule holds, Colorado Crossing creditors are expected to vote on a final reorganization plan in late May or June. A majority of creditors - in terms of their number and the amount of their claims - must approve the plan for it to go forward. The bankruptcy judge ultimately must sign off as well.
The goal, Lewis said, is to start implementing a plan by mid-July.
"We're at the beginning of the process, but at least we are in motion," Lewis said. "That's how I look at it."
Jim Johnson owns G.E. Johnson Construction in Colorado Springs, which is owed $2.1 million for its work at Colorado Crossing. He declined to say where he stands on the plan at this point.
Yet, Johnson said, he knows he and other creditors will never get everything they're owed. Any payments creditors receive probably will come over several years, he added.
"We'd like it to be 100 (cents on the dollar)," Johnson said. "But it's not going to be 100."
If the plan is rejected, there's also a backup proposal included in court documents: an auction of the Colorado Crossing property to the highest bidder.
Creditors, however, probably would receive less if the project is auctioned instead of developed, Lewis said.
Even if a plan to develop the property is approved, more potential hurdles remain, said Les Gruen, who heads the Urban Strategies planning firm in Colorado Springs and is a veteran of the commercial real estate industry.
Gruen wondered if there will be demand for the land uses envisioned for the property, such as office space. Then there's consideration of the cost to complete the buildings and whether they will generate an acceptable return, he said.
"There's the investment side and how you generate a return that justifies your investment," Gruen said. "Then, on the other side of the equation, who's going to want to buy land or consume land at that site? That's what you've got to figure out."
In any case, Gruen said the Colorado Crossing development plan is a positive step. Smith has credibility in the real estate industry, he said, and something needs to be done with the property.
"To everyone's credit, they're trying to figure out how to make something work on this property that's been essentially sterile or sterilized for the last several years," Gruen said. "Everyone that's involved trying to make it work deserves credit, rather than throwing their hands up in the air and saying 'woe is me.'?"
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