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January 22, 2018

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Bankruptcy threat fuels internal disputes among Inspirada investors


Steve Marcus

Inspirada, near Anthem in Henderson, was envisioned as a 13,500-home, 2,000-acre New Urbanist community where people could walk to parks, schools and a casino, but the housing slump has called into question the commitment of developers and buyers and perhaps lowered the value of some of the homes by about $100,000.


Mountain's Edge and Inspirada

A view of the Mountain's Edge master-planned community in the southwest Las Vegas Valley Friday, August 6, 2010. Many people bought into the community with the promise of parks but many of the parks have been scaled back or will not be built. Launch slideshow »

With lenders pushing Henderson's Inspirada planned community into bankruptcy, internal disputes are heating up among Inspirada's investors.

The disputes pit Southern Nevada developer Focus Property Group, manager of Inspirada, against its partners in Inspirada: homebuilders KB Home, Meritage Homes, Woodside Group, Toll Brothers, Beazer Homes, Kimball Hill Homes and Pardee Homes.

With the recession slashing demand for new homes in Southern Nevada, development at Inspirada has stalled with sales of only about 640 homes — a far cry from the 8,500 residences envisioned for the community.

After the homebuilders stopped buying land in Inspirada to develop communities there — making it impossible for Inspirada to pay its debts — Focus Property Group's Focus South Group LLC charged the homebuilders had wrongly shut down development of the project and took them to arbitration.

The arbitrators in July found the builders wrongly shut down the project and breached an agreement to buy land from the Inspirada development company and awarded Focus damages of $36.8 million. The homebuilders are appealing that award.

On Dec. 9, lenders led by JPMorgan Chase Bank filed an involuntary bankruptcy petition against the Inspirada development company, South Edge LLC, charging defaults under a $585 million credit agreement.

After that, the homebuilders led by KB Home hired the Los Angeles law firm of Klee, Tuchin, Bogdanoff & Stern LLP (KTB&S) to represent South Edge and fight the involuntary Chapter 11 petition.

The homebuilders on Dec. 16 circulated a document among themselves saying they "should engage KTB&S to oppose the involuntary petition ... and oppose the appointment of an interim bankruptcy trustee.''

The homebuilders proceeded with hiring the law firm without Focus's participation because, they say, Focus is cooperating with the lenders in the dispute and is adverse to South Edge regarding the involuntary bankruptcy filing.

Focus South on Wednesday filed an objection to the hiring of KTB&S, charging the engagement "is impermissible and is the latest in a long line of maneuvers employed by the builders to avoid their contractual obligations to South Edge.''

"The builders are attempting to hire KTB&S to do their bidding, not act in the best interests of South Edge, and protect the builders from having to pay the hundreds of millions of dollars the builders owe South Edge,'' said the filing by Focus South attorneys with the law firms of Bogatz & Associates P.C. in Las Vegas and White & Case LLP in Los Angeles.

Focus South, in its motion, also sought appointment of a "responsible officer'' to select a law firm to represent South Edge and determine whether the involuntary bankruptcy petition should be contested.

"The court’s appointment of a `responsible officer' will guarantee that South Edge’s interests (not the interests of the builders) are properly represented throughout these proceedings,'' said the filing by Focus.

In court papers, Focus noted it's one of Southern Nevada's most prominent developers and "has a substantial stake in the success of Southern Nevada.''

Focus developed the Mountain's Edge and Providence communities but saw its Inspirada and Kyle Canyon Gateway developments fall into default in 2008 with the recession.

"Affiliates of Focus serve as the general manager of the debtor (South Edge) and the construction manager of the Inspirada project. In addition, Focus is the only member to have taken down (purchased) all of its land and fully pre-funded its pro rata share of major infrastructure costs. It has invested approximately $172 million into South Edge, the second most funds of any member, and just slightly less than KB Home,'' said the filing by Focus.

Its filing Wednesday seeking appointment of new attorneys and an impartial "responsible officer'' for South Edge backs up assertions by JPMorgan Chase in the Dec. 9 involuntary petition that the arbitration decision against the homebuilders "fosters managerial deadlock" at South Edge.

Despite winning the arbitration decision, Focus can't compel KB Home and the other builders to buy and develop land at Inspirada, court records show.

The homebuilders have not yet responded to the petition to disallow them from being represented by their Los Angeles law firm.

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