Feburary 4, 2009 - Versant, Asheville N.C.

Versant Development in bankruptcy; embezzlement alleged

Versant Development in bankruptcy - embezzlement alleged

Creditors have forced the upscale residential development Versant into Chapter 11 bankruptcy and a minority partner is accusing the majority partner of embezzlement.

It appears from property and legal records that infrastructure and roads worth several million dollars have been installed at Versant, but only three lots have been sold in the development, which covers nearly 400 acres at the eastern end of Baird Cove Road. Developers' unpaid bills amount to at least $3.8 million, records say.

The development was planned to include 168 single-family home sites priced from $200,000 to $1.2 million and 200 condominiums to sell for $450,000 to $2 million.

But an attorney for developer Versant Properties' minority partner told a federal bankruptcy court judge Tuesday that majority partner Robert Richey, who is based in the Charlotte area, has agreed to withdraw from the project and that a Raleigh real estate consultant is to be hired to take over.

Attorney Travis Moon, representing minority partner Cary Harrison, said after the court hearing that it hasn't been determined whether attempts to sell lots individually will continue or if the remaining property will be sold as one piece. Chapter 11 bankruptcy gives a company protection from creditors while it reorganizes in hopes of staying in business.

The market for expensive homes in Buncombe County has been especially hard hit during the current housing crunch, putting financial pressure on development companies like Versant Properties.

Alleged misdeeds

Harrison alleges that the way Richey ran Versant Properties created more problems.

A Dec. 22 motion filed on Harrison's behalf asking that a trustee be appointed to oversee Versant's affairs says that Harrison, who Moon said now lives on the North Carolina coast, and Richey have known each other since elementary school. Richey's business address is in Charlotte.

The motion says Harrison had originally planned to retire on the property but changed plans after the death of his wife and instead accepted Richey's offer to develop the property in return for a majority interest in the project.

Harrison's motion says Richey:

Embezzled from the project, including taking more than $1 million under the guise of “future commissions” without any agreement that called for commissions.

Unilaterally raised his pay to more than three times the agreed upon amount.

Took out a $5 million life insurance policy on Harrison, with Richey as the beneficiary, without Harrison's knowledge.

Used Versant funds “to take multiple extended and exorbitant personal vacations” and had Versant employees do personal errands such as picking up his children from school.

Failed to pursue leads for a sale of the property except to a potential buyer that would allow him to keep his job.

Moon said during Tuesday's court hearing that Richey had increased his pay from $75,000 a year to $250,000 and that he took a vacation to Alaska last summer with Versant money.

Harrison declined comment after the hearing. Richey could not be reached for comment.

Moon said he knew of no criminal charges or investigation in the matter. Woodfin police Chief Brett Holloman said his department is not investigating.

Big tab

Four companies filed a bankruptcy petition against Versant Properties in November, saying they were owed a total of $3.8 million. The largest creditor was Reynolds-based Huntley Construction Co., which said it is owed $2.8 million.

Wachovia Bank agreed in October 2005 to loan $24.5 million for the project. Harrison's motion says Versant Properties owes Wachovia more than $23 million, that there are more than $4 million in unpaid bills for infrastructure work and finishing the infrastructure for the first phase of the project would cost more than $1 million.

Town Administrator Jason Young said Versant Properties gave the town an irrevocable letter of credit, which he said works much like a bond, when the town approved plans for the project around three years ago. The town tapped the letter for $3.95 million in November and plans to use a portion of the funds to complete infrastructure for the first phase of the project.

Young said the remainder of the money would be returned and no town funds will be used.

He said the development has only one occupied home, which is served by a well and septic tank because water and sewer facilities have not been completed.

Versant had an advertising campaign that included ads in The Wall Street Journal and bills itself on its Web site — www.versantasheville.com — as “The Height of European Living. Overlooking Asheville.”

Much of the property is on ridge tops. An architect who worked on the project told the Citizen-Times last year that he and Richey took inspiration from hill towns in Italy, Spain and France when planning Versant.

Young said someone will eventually be able to sell lots in the development: “It's a good, valuable, beautiful piece of property and it already has millions of dollars of infrastructure.”

Kirk Boone, CEO at nearby Reynolds Mountain Communities, said it may be difficult to make sales in the near future because of market conditions. Some Reynolds Mountain property abuts Versant but there is otherwise no connection between the two developments, he said.

Boone also called the property “beautiful” and said the fact that the property has only one access means it would be hard to use for a purpose other than residential development.

Original Story - Citizen-Times