Lender forecloses on major Chesterfield development

Lower Magnolia Green, one of Chesterfield County's largest planned developments, is in foreclosure and will be auctioned this month.

The development's lender, New York-based iStar Financial, has declared the developer, Magnolia Green Development LLC, in default on its $96.9 million loan issued Jan. 5, 2007, according to legal documents.

As a result, a substitute trustee will offer the property for sale at an auction May 19.

The plan for 3,550 homes and retail uses at Woolridge and Otterdale roads originally was approved by the county in 1991 as part of a larger project that since has been split in two. Only a few dozen homes have been built, and about 15 are occupied. The project was in its first phase of development.

The centerpiece of the community was the 18-hole Westham Golf Club that is almost half-finished.

Magnolia Green Development LLC representatives did not return calls for comment this week, but a legal advertisement yesterday confirmed the foreclosure. Representatives from iStar also declined to comment.

"This is just a sign of the times," said Chesterfield Board of Supervisors Chairman A.S. "Art" Warren. "There's great change occurring in the economy that's impacting projects that have been planned for long periods of time."

Branner Station, another planned mixed-use development for 4,988 homes near Chester, was put on hold indefinitely in October when developer HHHunt pulled out because of financial concerns.

Warren was quick to point out that any new developer for Magnolia Green would be bound by existing zoning conditions.

County Planning Director Kirkland A. Turner said he thought the county would be reluctant to allow a new developer to bypass those conditions.

"For this to change, there would have to be a public process," he said. "Hopefully we've learned from our past experiences."

In 1988, plans for a 2,299-home mixed-use development called Green Springs was passed with a promise of an extension of the Powhite Parkway at the developer's expense. That project later fell through and was replaced by three smaller projects and no major road improvements.

While current residents will not be affected immediately by the foreclosure, there are questions as to their legal rights if the community they were promised is not developed.

Another portion of the development, approved for 1,300 homes and commercial uses, is owned by another developer and will not be affected by the foreclosure.

County Administrator James J.L. Stegmaier said the biggest setback for the county would be a delay in the sale of bonds to pay for area transportation improvements.

A Magnolia Green community development authority had planned to sell bonds to pay for major improvements to Otterdale and Woolridge roads. But the sale of those bonds depends on the success of the project.

"The residents of the county who live in that area have expressed an interest in seeing the road improvements," Stegmaier said. "This was the route the county chose to try and get those road improvements accomplished. Now, obviously, that's going to happen later than was originally thought."

Last year, the developer sued iStar in U.S. District Court in New York for $250 million plus damages, alleging the lender was attempting to take control of the property because of its own financial woes.

The suit was settled for undisclosed terms, and construction continued.

Local engineering firm Timmons Group Inc. sued Magnolia Green Development LLC late last year, claiming Magnolia Green and an affiliate company had failed to pay more than $1 million in services and fees. That suit also was settled with the terms kept private.

When the property is auctioned, iStar will have the option to purchase Magnolia Green and resume developing.

A deposit of $5 million or 10 percent of the sales price, whichever is lower, in cash or certified check will be required at the time of the development's sale with settlement due within 15 days.

Contact Wesley P. Hester at (804) 649-6976 or .