Bainbridge Condo Pyramid Scheme
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As credit tightens, are we going to see more of this kind of thing? For those of you who might not know, Bainbridge Island is the affluent part of Kitsap County, sometimes referred to as a bedroom community of Seattle.
Luxury Condos at Heart of Alleged Pyramid Scheme
The sign at the side of the highway called to Glenn Huff and Jean Schanen during one of their trips from their West Bremerton home to Central Market in Poulsbo.
"Earn 8 percent APR, 12 Month Maturity, Fully Secured," it beckoned from outside a small business park at Highway 305 near Bond Road.
Eager for funds to fuel their passion for growing local produce, they pulled in.
Now two years later, the retired couple -– she's 69 and he's 77 –- are trying to recover $50,000 they lost by investing in an alleged pyramid scheme involving a luxury condominium project on Bainbridge Island called the Meridian.
They are among as many as 57 investors from Kitsap County and elsewhere who plunked down $1,200 to $200,000 each for a total of $2.8 million toward the project, according to government documents. Some were older and financially unsophisticated.....
.....The state in June issued a cease-and-desist order against companies and individuals allegedly involved in attracting investors to the project.
This week, one of the companies, Meridian LLC, filed for bankruptcy to avoid foreclosure....
....The cease-and-desist order and lawsuit paint a scenario where investors attracted by generous interest rates went along with advisers they liked and trusted. But those trusted persons couldn't keep promises they made when the Bainbridge Island condo market softened, construction slowed and the Meridian units didn't sell fast enough.
Among the respondents in the order are Meridian LLC; Malibu Development Corp.; John M. Erickson and Bruce McCurdy, both Poulsbo residents and players in Malibu and Meridian LLC; and businessman Christopher M. Heins of Poulsbo.
In 2003, Malibu obtained a $4.5 million construction loan from a Kitsap credit union to build the Meridian. Two other big chunks of early money came from a $1.5 million private loan and $1 million line of credit, according to the papers.....
....Documents also alleged that appraiser Lauren Ellis of Edmonds had a financial interest in the project, but his appraisal of the Meridian was presented to the smaller investors as the work of an independent appraiser.
Contacted by the Kitsap Sun, Ellis denied he had a stake in the Meridan. "The only funds I received (were) for appraisal fees."....
..
As credit tightens, are we going to see more of this kind of thing? For those of you who might not know, Bainbridge Island is the affluent part of Kitsap County, sometimes referred to as a bedroom community of Seattle.
Luxury Condos at Heart of Alleged Pyramid Scheme
The sign at the side of the highway called to Glenn Huff and Jean Schanen during one of their trips from their West Bremerton home to Central Market in Poulsbo.
"Earn 8 percent APR, 12 Month Maturity, Fully Secured," it beckoned from outside a small business park at Highway 305 near Bond Road.
Eager for funds to fuel their passion for growing local produce, they pulled in.
Now two years later, the retired couple -– she's 69 and he's 77 –- are trying to recover $50,000 they lost by investing in an alleged pyramid scheme involving a luxury condominium project on Bainbridge Island called the Meridian.
They are among as many as 57 investors from Kitsap County and elsewhere who plunked down $1,200 to $200,000 each for a total of $2.8 million toward the project, according to government documents. Some were older and financially unsophisticated.....
.....The state in June issued a cease-and-desist order against companies and individuals allegedly involved in attracting investors to the project.
This week, one of the companies, Meridian LLC, filed for bankruptcy to avoid foreclosure....
....The cease-and-desist order and lawsuit paint a scenario where investors attracted by generous interest rates went along with advisers they liked and trusted. But those trusted persons couldn't keep promises they made when the Bainbridge Island condo market softened, construction slowed and the Meridian units didn't sell fast enough.
Among the respondents in the order are Meridian LLC; Malibu Development Corp.; John M. Erickson and Bruce McCurdy, both Poulsbo residents and players in Malibu and Meridian LLC; and businessman Christopher M. Heins of Poulsbo.
In 2003, Malibu obtained a $4.5 million construction loan from a Kitsap credit union to build the Meridian. Two other big chunks of early money came from a $1.5 million private loan and $1 million line of credit, according to the papers.....
....Documents also alleged that appraiser Lauren Ellis of Edmonds had a financial interest in the project, but his appraisal of the Meridian was presented to the smaller investors as the work of an independent appraiser.
Contacted by the Kitsap Sun, Ellis denied he had a stake in the Meridan. "The only funds I received (were) for appraisal fees."....
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Comments
http://www.themeridian.net/
The appraiser and the initial marketing analysis for the lender missed by a continent. The Bainbridge buyer may be able to pay more than many, but the reason why they are able to do so is that they aren't fools.
Unit 301...originally 850k...currently on MLS for 629k
Unit 208...originally 737k...currently on MLS for 599k
Unit 304...originally 730k...currently on MLS for 529k
Unit 306...originally 670k...currently on MLS for 499k
Unit 205...originally 615k...currently on MLS for 449k*
Unit 206...listed as sold..... now STI on MLS for 427.5k
*=double listed on MLS...currently STI at 398k
is this a sign of things to come elsewhere?
anybody able to track down what the original few sold for? (such as 201, 204 and 308)
First the marketing approach is that of a 'spa' with a private athletic club. The Island has two nice fitness facilities not far from this site. Projects with this type of marketing have high monthly fees, which tends to suppress values because mortgage companies include those fees when calculating what they will lend.
The units were offered at a price point that isn't justified by the site (Bainbridge is 'special', but not THAT special). There are new condo projects closer to the ferry for the commuter crowd, and a large project that is beautifully sited on the other side of 305.
The units sold may be owned by the former property owner. I have known developers buy land by giving the former property owner title to a unit or two. Years ago I saw the same kind of horse-trading for professional fees (architect). If the developer had cash-flow problems that wouldn't surprise me in the least.
Lastly, once a project is in trouble I wouldn't buy because you never know how far down the project prices will drop before it sells out. Who wants to catch a falling knife?
That was a play on the 'Seattle is Special' attitude, and maybe also a comment with an edge about BI politics.
What is special about BI residents who work in down town Seattle is that they don't have to deal with freeways. Give me a 40 minute commute when I can safely be on line, be on a cell phone, or have a glass of wine any day! Nothing wrong with Ballard as all of us Norse women can attest.
I have friends with a house a mile and a half from the ferry, and it adds a significant pain in the ass factor.
Condos wouldn't make sense to me, however. The young, single crowd that would probably look at condos would tire quickly of their nightlife being dependent on a ferry schedule.
I live on a bus line on BI now but did live in Winslow and walked to the ferry. The bus added maybe 10 minutes to my home to ferry time, not a big difference when you compare the difference in living space.
The ferry runs until 2:10 am on the weekends, 1:35 on weekdays from Seattle. I suppose this might be an issue for some.
As I am neither young nor single I can't comment on its suitability for that crowd. I do think it is ideal for school age families where the parents work down town. The schools are superb. It is also very good for retirees as the crime rate is low and there are lots of suitable activities.
It will be interesting to see what demographic buys all the new condos. My bet is that they are attractive to empty-nesters who enjoy Seattle's cultural activities.
Big full page ad in todays Kitsap Sun for the Meridian Condos:
"...1,400 - 1,700 sf 2 Bed / 2 Bath from $449,900 - BEST VALUE ON THE ISLAND..."
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Who knows how the condo inventory will shake out in the next few years. I know I would rather live in a condo on BI than elsewhere in metro Seattle, unless I needed to go to SEA frequently.
What concerns me about new construction, including condos, is that there has been so much activity skilled craftsmen/women have been in short supply. Some of what I observed is troublesome. Give me a building that is at least 10 years old any day. By that time problems will have surfaced or be evident to a good inspection.