What’s next for Tacoma apartment site? Owner’s bankruptcy proceedings offer grim take
An official overseeing the bankruptcy case involving a local development firm contends the company’s holdings in its Tacoma apartment site are too costly to maintain.
Shelly Crocker, the chief restructuring officer for Harbor Custom Development, wrote in a declaration filed June 13 with the U.S. Bankruptcy Court for the Western District of Washington that the value of its Pacific Ridge Apartments in the Fern Hill area is well below what’s owed on it.
Crocker noted that “administering Pacific Ridge has been unduly burdensome” on HCDI’s overall fortunes. “The property is difficult to manage, and the Pacific Ridge debtor cannot meet its obligations without support from HCDI.
“In my business judgment, continued administration of the Pacific Ridge asset is highly unlikely to provide any meaningful benefit to the estate, and conversion is in the best interest of the debtors and their creditors.”
Tacoma-based Harbor Custom Development and the various affiliated LLCs tied to its developments filed for voluntary Chapter 11 bankruptcy in December, with another entity filing in February. The move was geared toward restructuring the business after steep losses in its market value on Wall Street and the challenge of selling off various properties, amid other financial issues.
In February, the firm announced it had “found no viable plan” to continue and would sell four apartment properties in the area along with assets in three other states as part of its wind-down process. The planned sell-off included its 80-unit Pacific Ridge Apartments, 8445 Pacific Ave. S.
The site, which started leasing in late 2022, was originally planned as condominiums. HCDI switched those plans to apartments as the company itself transformed to more multifamily development in the area.
The firm’s Tacoma apartments now are the focus of a request to switch to Chapter 7 bankruptcy in the case involving Harbor Custom subsidiary Pacific Ridge CMS, LLC, which is tied to the property and is among the Chapter 11 cases being jointly administered.
“Debtors Pacific Ridge and HCDI continued to undertake efforts to maintain, lease and stabilize Pacific Ridge throughout these Chapter 11 cases in order to preserve and maximize the value of the property for the benefit of creditors,” Crocker wrote.
Crocker said she initially sought to pursue an auction of the site along with other apartment properties held by Harbor-LLC-related entities. She “concluded that there are no potential purchasers that would provide value near to, much less in excess of” one lender’s claim. That lender is an entity affiliated with Sound Capital of Bellevue.
Crocker added that “the likely sale price of the Pacific Ridge Apartments will fall well below a threshold that would potentially bring in value for creditors,” besides Sound.
Sound’s construction loan for Pacific Ridge has an outstanding balance of around $20.3 million, according to court filings, with an additional $3.5 million owed on a separate, secondary loan held by a group of lenders. Pierce County Assessor-Treasurer records show the site with an assessed value of around $17.5 million, and owing a total of more than $200,000 in property taxes for 2023 and 2024.
Sound Capital, for its part, has expressed frustration in seeking its own repayment ahead of a settlement agreement reached June 10 between Harbor Custom and another of its lenders, commercial banker BankUnited, based in Florida.
An objection was filed June 4 ahead of the Harbor Custom-BankUnited deal by attorneys for Sound Capital entities. The filing included a mention of Pacific Ridge and how things have unfolded according to Sound’s perspective, noting “...there is no more than a single bidder with interest, and that is for the Pacific Ridge Apartments. ...”
Converting Pacific Ridge to a Chapter 7 case is essentially a liquidation bankruptcy, with no reorganization or convoluted repayment plan. Such a move might help speed collection efforts, such as for Sound Capital.
A decision on the proposed switch to Chapter 7 for Pacific Ridge could come later this month.
