Deal in trouble

The development pact between Mount Pleasant and the company overseeing the massive Carolina Park project could be jeopardized if $600,000 in payments are not made this month.

The Dec. 21 deadline pits the cash-strapped developer against the owner of a loan secured by most of the vacant land within the 1,700-acre master-planned, mixed-use community. During a court hearing Tuesday, attorney Trey Thompson characterized the two sides as "warring factions."

As it turns out, they likely will have to learn to make peace in less than three weeks, based on a judge's ruling Tuesday that directed them to sort out who will foot the bill.

Financial trouble at the project surfaced in June when its developer, Carolina Park Associates, stopped making payments on a $25 million loan balance, according to court records.

In August, Palmetto Debt Holdings LLC, a company led by Charleston real estate investor J. Luzuriaga, bought the note for an undisclosed amount. Within weeks his group filed a foreclosure lawsuit and sought to replace the developer with a court-appointed receiver.

Thompson, who represents Palmetto Debt Holdings, said the $600,000 bill that's coming due this month is critical to preserving the value of the property, which is just north of Mount Pleasant Regional Airport off of U.S. Highway 17.

Carolina Park Associates agreed to pay $500,000 annually to the town and $100,000 to the county for improvements in the nearby Whitehall Terrace community over 12 years as part of its original development agreement, which dictates what can be built on the tract.

If the payments are not made, the developer could be found in default, possibly making the entire contract null and void. That, in turn, would hurt the value of the land, Thompson said.

"If the development agreement goes into default, all bets are off. ... That's the glue that holds all these pieces together," he said.

Town Administrator R. Mac Burdette said Mount Pleasant is following the Carolina Park case carefully.

"We want the development agreement to stay in place, and we want the development agreement to succeed, whoever owns it," he said Tuesday.

A default could have "severe implications" for the property owner, he added.

"They would have to start the approval process all over again," he said. "They would not have a development agreement anymore, potentially."

A default also could affect town finances. One concern is the $500,000 annual payment, as Mount Pleasant has already borrowed money against that revenue stream, Burdette said.

"So if they default on their payment, then we have to go find the $500,000 debt service payment," he said.

Burdette said the case is taking Mount Pleasant into "new territory," noting that development agreements are fairly new. For example, he said, it's unclear what would become of the zoning, or the land and money Carolina Park Associates have promised the town for a new fire station.

"There are lots of legal questions here," he said.

Circuit Court Judge Roger Young said the request for a receiver was unusual because Carolina Park is not generating any income, an argument the developer's attorney also made.

"What's the point of a receiver at this point if there are no rents or profits coming in?" Young asked.

David Swanson, a lawyer for Palmetto Debt Holdings, said a third-party appointee would serve as an arm of the court that could force the various factions to work out a solution.

"The lender is just not in that position. We need somebody on the scene," Swanson said.

Carolina Park Associates, which has invested about $50 million in the property, is working to secure new financing and is willing to sit down with Palmetto Debt Holdings, said its lawyer, Michael Scardato.

Young declined to appoint a receiver, saying the lender, developer and others involved all have enough at stake financially to ensure that the current agreement remains intact.

The Carolina Park case is one of the largest foreclosures to emerge from this latest real estate downturn. It does not affect previously sold tracts, including the Wando High School and Roper St. Francis Hospital sites.

Luzuriaga declined to comment about his group's plans should it gain control of the roughly 1,100 acres that have not yet been developed.

"I'm just the lender," he said after the hearing.

Contact John McDermott at 937-5572 or jmcdermott@postandcourier.com.