HAMPTON — The developer of a Coliseum Central town home project that has not paid taxes in at least two years has filed a lawsuit challenging the amount the city is charging the company to recoup expenses for the publicly financed streets, sidewalks and utilities needed for the project.
Meanwhile, Hampton Treasurer Robert Williams plans to auction off the two parcels owned by the company that built H2O to help recoup the nearly $1.3 million in back taxes and special assessments the city believes is owed. The auction will not include any parcels where homes were built. The developer has paid taxes on those properties.
“I think they’re banking on us not selling it,” said Williams, who plans to schedule a property auction within the next 60 days. “We now have legislation that gives us a green light to move ahead.”
The General Assembly passed legislation earlier this year strengthening localities’ abilities to collect delinquent assessments charged by community development authorities.
The lawsuit and pending auction are the latest developments in the troubled financial history of the H2O development, located along the east shore of Coliseum Lake.
In 2005, the city created the H2O Community Development Authority with the sole purpose of borrowing $9.4 million to use for the construction of streets, sidewalks and underground infrastructure for the planned 583-unit residential project, which was expected to be the next big expansion in Coliseum Central.
But the project’s original developer defaulted on its $11 million construction loan, and the bank sold the project to Cygnus Capital Inc. for less than half its assessed value. The Atlanta-based arm of that company then divided the project into two separate legal entities — Cygnus H2O-Phase 1 LLC and Cygnus H2O-Phase 2 LLC.
The company continued to develop and pay taxes on Phase 1, which has mostly waterfront lots. Phase 2, which is mostly inland, it left fallow and in arrears.
The civil suit filed in Hampton Circuit Court this month claims the city and the community development authority charged too high a special assessment on Phase 2.
The lawsuit, filed by another Cygnus division called Coliseum Drive Apartments LLC on behalf of Phase 2 LLC, claims the city is charging the full assessments even though the public improvements have not been completed.
The special assessments levied against the property “grossly exceeded” the level of improvements, the lawsuit says.
Coliseum Drive Apartments does not own the properties, but the company has the same Atlanta mailing address as Cygnus Capital Inc. and the LLCs that own the first and second phases.
A phone number listed on court documents for Coliseum Drive Apartments attorney Kimberly Ann Taylor is out of service. Attempts to find contact information for her were unsuccessful. Messages left at Cygnus’ office were not returned.
Bonnie France serves as the community development authority’s lawyer.
She said a Supreme Court decision published in February involving a Fredericksburg community development authority, and the subsequent legislation passed by the General Assembly, set the ground rules for localities to recover special assessments from developers who used public funds to pay for developments such as H2O.
Both France and Hampton City Attorney Vanessa Valldejui said they can not specifically comment on the H2O lawsuit.
Coliseum Drive Apartments is asking a Hampton Circuit Court judge to void the liens placed on the properties.
Despite the lawsuit, Hampton’s treasurer is marching forward with plans for a public auction.
“This does not slow us down from what we want to do,” Williams said. “There’s no injunction, so we’re going to proceed on.”
If the city finds a winning bidder for the two properties, the proceeds will be used first to pay off delinquent taxes and special assessments owed to the authority. The city will keep any money left over, if any exists.
The parcels are assessed at a combined $5.2 million.
The two parcels were eligible on Jan. 1 to be auctioned because of the delinquent taxes.
Combined with stormwater fees and other utility bills, Cygnus owes $1.3 million, according to publicly available tax records.
The community development authority has spent $5 million of its $7.1 million budget for public improvements, according to those records.
The multiphase residential project once thought to be the next big thing in Coliseum Central never bloomed the way its original developer had hoped.
The Great Recession slowed developer Sandler at Coliseum Central LLC just a year after the city’s financing was in place. By 2009, the Virginia Beach-based developer was falling behind on the assessments owed, prompting the city to place liens on the property.
In November 2011, Sandler paid $1.5 million to the city for real estate taxes and special assessment charges, as well as interest and penalties for late payments. Getting caught up freed Sandler to pursue the construction permits needed to continue the first phase.
But in March 2012, Bank of America foreclosed on Sandler’s $11.6 million construction loan. Cygnus then successfully bid on about 19 acres of the H2O project for about $1.5 million. At the time of the auction, the property held an assessed value of roughly $3.4 million.
The Atlanta-based company then split the 19 acres into separate phases and continued developing one while leaving the second in arrears.
Since September, 61 of the development’s lots have been settled with home builders, according to the most recent Municap report disclosing the project’s status.
Hampton City Council members said they can not comment on the lawsuit, but they hope the city’s efforts to update the Coliseum Central master plan will ultimately make land around H2O more attractive to developers.
“I do believe we’re heading in the right direction,” Councilman Will Moffett said. “I’m optimistic that over time we’re going to make a significant impact in that area.”
Moffett and Councilman Donnie Tuck said the council has discussed in closed session ideas to develop land near H2O, and if those discussions became public it could jeopardize the city’s negotiating strategy with developers.
Tuck said he believes there should be more public input in the city’s deliberations, although he also believes discussions are moving in the right path.
H2O “hasn’t been on the forefront of discussions,” he said. “But beyond that, I’m hoping we can spur some kind of other economic activity down there.”
Williams believes H2O serves as an example of the type of scrutiny that needs to be put in place before localities create community development authorities to help finance projects.
“I think people are more cautious about going into these types of deals now,” he said.
Brauchle can be contacted by phone at 757-846-4361.
H2O town homes Key dates:
2005: H2O Community Development Authority is established.
2007: Community development authority borrows $9.4 million to finances public improvements for H2O project being built by Sandler at Coliseum Central.
September 2010: Hampton Redevelopment and Housing Authority terminates Sandler’s option to buy land for final two phases.
December 2011: Bank of America announces Sandler’s loan default and sells interest in loan to Cygnus Va LLC.
March 2012: Cygnus Va LLC completes foreclosure and now controls properties. The company pays $1.5 million for property valued at $3.4 million. Cygnus promptly creates separate entities for each of the project’s phases.
March 2013: The city approves construction of a clubhouse and landscaping along Freeman Drive. Authority agrees to spend $1 million for public improvements along Freeman Drive.
Sept. 30, 2014: Records show that 45 homes in the first phase have been sold.
Jan. 8, 2015: Hampton treasurer’s office posts public notice of foreclosure, but must wait for Supreme Court to act in separate case.
Jan. 23, 2015: Virginia Supreme Court clarifies rules for recouping delinquent special assessments through public auctions.
March 2015: General Assembly passes legislation strengthening localities’ abilities to collect special assessments on behalf of community development authorities.
June 2015: Coliseum Apartments LLC files a lawsuit in Hampton Circuit Court against the H2O Community Development Authority and city of Hampton.
Sandler at Coliseum Central LLC: This Virginia-Beach company first created H2O and defaulted on its loan.
Andy Cummings: He is the principal of number limited liability companies that own real estate throughout the country, and he is an employee of Cygnus Capital.
Cygnus Capital: An international investment company that bought the H2O project after Bank of America foreclosed on Sandler at Coliseum Central’s loan.
Cygnus H2O-Phase 1 LLC: Andy Cumming’s company that remains current on special assessments, taxes and utilities and is where the town homes are built.
Cygnus H2O-Phase 2 LLC: Andy Cumming’s company that owns property in arrears with the city by about $1.3 million.
Coliseum Apartments LLC: Filed a lawsuit against the city of Hampton and Community Development Authority claiming assessments and taxes are excessive for H2O phase 2. Company lists the same Atlanta mailing address as the other Cygnus entities.
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