Jim Morley hit plenty of high notes in his career as a land developer, with more than a dozen housing developments at one point that stretched across the city’s eastside.
The depth and duration of the 2008-09 recession, however, put most of those developments on ice. By mid-2008, funding had dried up and lot sales plummeted. Today, much of Morley’s portfolio has fallen back into the hands of lenders. Earlier this month, Morley made headlines again after foreclosure proceedings were begun on his 156-acre Appletree Golf Course near Fountain and more than 200 acres of surrounding vacant lots.
The outstanding balance on that loan was for slightly more than $14 million. At the moment, El Paso County Public Trustee records show that lenders have taken action on loans of more than $80 million made to various limited liability partnerships and companies in which Morley was a key stakeholder. But the total is closer to $170 million after factoring in soured deals that have already been resolved.
This week, the Business Journal sat down with Morley to talk about his state of affairs, real estate development in general, and what he might do next. Here are excerpts of the conversation.
How have you survived all this?
“I don’t know that I have. To think that at one time we controlled 14,000 lots. We had more than 90 employees and were selling about 900 lots a year. The banks liked our projects and were literally throwing money at us. At $5 million or $20 million, I figured they’d like to see the projects they were lending on. Most never even bothered.
Then in 2008 the recession hit, things went sideways and all lines of credit were suddenly denied. Loans weren’t renewed after years of being renewed almost automatically.
Our priorities were that we paid lenders first, any investors or partners second and ourselves third.
That’s when if you had 150 lots (selling) at $30,000 to $50,000 each, once they were sold you’d net about $2 million. We had multiple projects going at the same time. That’s how we did it.
Looking back, is there anything you have done differently to avoid the losses?
Yes, especially the larger deals like Sanctuary in the Pines (in 2006) where we used $5 million or $7 million of our own cash. We were lucky that we’ve only had one or two hard-money investors (owed money). But if we hadn’t put the cash in, we wouldn’t have it (now) anyway. There are so many other deals where what is owed (today) is so much more than what we can pay that it probably would have just prolonged things.
How is your relationship with your lenders now?
We get slaughtered on one deal and are asked to help on another. A couple of banks have approached me — one with 80 lots they took back — asking what they ought to do. Even the six or seven deals I looked at a year ago that looked fantastic a year later aren’t as good.
The development game has totally changed forever. (For example), I used to sell 25 or 150 lots at a time to Richmond Homes. Last week, I sold one lot to them. We’re (developers) are becoming land bankers for lenders. When you’re selling one, two or three lots at a time, you can’t make enough money to pay anyone back. I wanted to be out of this business at 62, but the way things are going, I’ll be 170.
I wonder what they’re (lenders) going to do with what they’ve taken back. I was in meetings (last year) in Kansas City with a group of lawyers and 10 or 11 bankers. They said they were thinking about developing the land themselves, but 14 months later, there’s still nothing done. As a developer I ask, ‘Who’s better to take a challenge like that on?’
I’m a businessperson, so I don’t take what they have to do personally. We’re all in this together, and I’m still friendly with many of them. I’ve been through three downturns. This is the worst I’ve seen and it won’t get better until we get more jobs.
We’ve dealt with the first $130 million in foreclosures. Now we’re down to the last $40 million. That’s going to be the hardest.
What’s your playbook? How will you get back on your feet?
We’ve given back or have been foreclosed on 10 deals so far. They were either deed-in-lieu-of-foreclosure, then foreclosure to clear out the books or they’ve been sold. If the banks wanted my help, I would help develop the property they took back. But I’m pretty beat up. For the last two years, every day has been Groundhog’s Day, trying to make things right without the money to do so. It’s very difficult, both professionally and personally.
We just have to sell what we have. Fortunately the supply of finished lots for new homes has dwindled over the past three years. We’ve got a 72-lot subdivision in Forest Meadows where we’re selling lots and actually had a buyer (this week) for four of them.
Have you ever thought of leaving town, like some developers have done?
No. I’ve lived here since the 1980s. I remember when developers like (Steve) Schuck, (John) Olive and Martin List worked through their problems and stuck it out. I have seven kids, and my wife’s family, as well as mine, live here. We’re entrenched and have put a lot of money and support behind a lot of community projects, especially for sports: gymnasiums, parks, fields for baseball. Some were part of our municipal duty as a developer, but a lot of them weren’t. We’ve given computers to schools and uniforms to teams. This is our home.
In my business, you take some licks. There are ups and downs. Right now we’re down. We now have one employee. Our office building is much bigger than what we need. We’re in the process of trying to fill it up.
What’s your crystal-ball reading for the residential market in the next several years?
I talk to a lot of other developers. We’re all in the same situation. The only way things will change is if we add new jobs. It will help that banks aren’t throwing money at people that couldn’t afford homes in 2004, 2005 or 2006. They borrowed buyers from the future. Now young families need 20 percent down just to get into their first house. But I’m not sure things will ever be the same.
Click here for a map of Jim Morley’s properties.
Audio excerpt of the interview with Jim Morley.