Arbitrators: Developer should pay $43.6 million

By Russell Grantham

The Atlanta Journal-Constitution

Arbitrators said a longtime Atlanta developer owes $43.6 million to a federal bank regulator and dozens of Georgia banks as the result of a failed $100 million development near Phoenix that helped sink at least two Georgia banks.

In the Valentine’s Day decision, the arbitration panel said developer W. Harrison Merrill and various trusts he set up owe the money to the Federal Deposit Insurance Corp. and a syndicate of banks that held an $89.3 million loan on the 5,664-acre Arizona property.

However, the decision didn’t clear the way for the FDIC and the syndicate of 60 banks, mostly in Georgia, to collect the money anytime soon.

“It is nonbinding,” said Atlanta attorney Bill Custer, who represents the banks. Under the loan agreement, the banks will try their case over again in the Superior Court of Pinal County in Arizona, said Custer, with the Bryan Cave law firm.

“We would expect to achieve and hope to achieve a similar result,” he said.

Merrill could not be reached for comment. He’s a self-described billionaire who has gained and lost fortunes and once hosted then-President George W. Bush at a Republic fundraiser in his home. His latest project is a $1 billion-plus residential development — Foxhall Resort and Sporting Club — on the western outskirts of Atlanta.

In late 2007, Merrill and several trusts tied to his other projects borrowed the money to finance the Arizona project, called Merrill Ranch. His ambitious plans called for a mixed-use development with offices, retail shops and more than 5,000 homes about an hour’s drive outside Phoenix.

But it stalled and went into foreclosure after the recession and real estate crash hit in 2007 and 2008.

Winder-based Peoples Bank, the lead lender on the deal, was seized by the FDIC last year after suffering heavy losses on that and other real estate-related loans.

Atlanta-based Silverton Bank, which had divvied up the loan and marketed it to dozens of banks, became Georgia’s largest bank failure in 2009, with $4.1 billion in assets.

Under Arizona law, the arbitrators said, Merrill and the trusts owed the banks and the FDIC for the difference between the loan amount and the market value of the properties on the 2009 foreclosure date.

In late 2009, a firm bought 1,156 acres of the property for $8.6 million to use as a potential copper mine. The arbitrators estimated that the remaining land was worth about $31.6 million as a future residential development.

Including about $5.5 million in other credits, that still left a so-called “deficiency” of $43.6 million, the arbitrators determined.