A sign Patrick McCourt taped to his computer monitor urges him: “Never, never, never, ever, give up.”
Based on a speech Winston Churchill gave during World War II, the words help to inspire a man on the brink of financial disaster.
McCourt led his Lake Stevens-based business, Barclays North Inc., to the apex of success. Just two years ago, the company was one of the largest private employers in the city and owned millions of dollars’ worth of raw land in Snohomish County.
Barclays specialized in finding and buying raw land, securing permits, preparing lots for construction and then selling them to builders.
Today, the company is struggling to survive.
Having once employed more than 100 people, Barclays has laid off three-quarters of them. It owes millions to lenders, and at least five of them have sued to recover loans worth $4 million. Banner Bank and First Sound Bank recently won judgments for more than $800,000. Dozens of other lenders are showing more patience with McCourt and giving him more time as he considers all options for the company’s future.
“As a company, we’ve done all the things we think are available to us to continue operating on a daily basis,” he said.
It would be possible, and probably easier at this point, for Barclays North to file for bankruptcy. That’s not in McCourt’s plans.
“I can’t walk away not knowing that I did everything possible to overcome the financial challenges,” said McCourt, a steely, intense man who wears cowboy boots to the office. “We have not, and will not, take a head-in-the-sand mentality.”
Times tough everywhere
McCourt doesn’t know exactly how Barclays North is going to survive, but he knows he’s not the only developer facing hard times.
A meltdown in the mortgage industry and subsequent problems in the credit markets began rippling from Wall Street to Main Street in 2007. Everyone associated with building, buying and selling homes has been touched: developers, builders, title companies, real estate agents and homeowners. Companies are laying off workers and struggling with debt. Banks are absorbing millions in bad loans.
McCourt likens the crisis in the home-building sector to a stone falling into a pond. It takes a while after the initial impact to see the waves.
“There are far-flung ripples that haven’t yet been felt,” he said, “but the rock has dropped.”
Snohomish County’s housing market still is better off than many other areas of the country. As of March, the countywide median price for single-family homes and condominiums had dropped nearly 7 percent from a year ago, according to the Northwest Multiple Listing Service. That compares with a 7.7 percent decline in median prices nationwide, according to the National Association of Realtors. In the West as a region, the median price has fallen 15 percent.
“Compared to where we’ve been, it seems like a dramatic shift,” said Allison Butcher of the Master Builders Association of King and Snohomish Counties.
While foreclosures still are well below the average nationwide rate here, people aren’t flocking to buy new homes, either. Mortgage lenders have tightened up requirements for borrowers. The local real estate market is soft — home sales were down 35 percent in March compared with a year ago — and there’s no doubt the economy here is taking a blow, McCourt said.
“I believe there are regional economies capable of continuing to move in a forward motion,” he said. “But not this time. I do not believe the Puget Sound is insulated.”
By all accounts, McCourt is a self-made man who invested his heart in Barclays North. He and his wife, Stephanie, started Barclays North from virtually nothing in 1989. They had moved to Lake Stevens from Alaska to complete construction of a development for a friend. They decided to stay.
The modest business that started in a rented 900-square-foot space near Tom Thumb grocery store south of Lake Stevens grew, and before long Barclays North was developing and selling 200 to 300 lots a year.
In 2002, the company received an opportunity to develop a 262-lot development in Mill Creek for a national builder. It was a crucial moment. That project led to other contracts with national builders, and Barclays North quickly became one of the major developers in the county. It ranked as one of the state’s fast-growing private companies.
“My feeling is they were probably the largest developer, or very close to the top, in the county,” said Zakir Parpia, president of Lake Stevens-based Himalaya Homes. “And with their projects in other states, they became more than just a regional developer.”
In the Puget Sound region, the hunger for homes seemed insatiable, available land for building was limited and prices were escalating. In 2005, the Snohomish County government was poised to finish designating areas where growth could take place. In anticipation, Barclays North had purchased a number of properties within the growth boundaries, raw land that could be subdivided and densely developed.
Acquiring so much property seemed like a prudent business move. It would come back later to hang like a millstone around the company’s neck.
Nobody’s buying lots
It’s hard to know exactly how much land the company amassed at its height. McCourt declined to give particulars on the company’s financial holdings, and like most developers, Barclays North creates individual limited liability corporations for many of its projects for insurance and liability protection. As of last fall, the company had listed for sale 1,400 lots worth more than $74 million. A March search of Snohomish County Assessor’s Office records found nearly 250 properties with a combined assessed value of $56 million owned by Barclays’ affiliated corporations.
McCourt said that at the company’s height in the summer of 2006, it owned about 2,000 lots in the county and 7,000 more spread across Arizona, Nevada, Idaho and South Carolina. Barclays North had ventured into major commercial projects, too, including a 275-unit condominium building in downtown Las Vegas. The company employed 108 people and occupied several buildings in Lake Stevens.
More than 90 percent of the land the company acquired was for national builders such as Quadrant Homes and Centex. That national customer base meant that when the mortgage mess hit, Barclays North was one of the first local developers to take a punch.
National clients put the brakes on building homes, and some walked away from deal commitments with Barclays and other developers. McCourt tells of builders who put down $500,000 in earnest money to buy development-ready lots, then decided to forfeit the money rather than build. Suddenly, the last thing most builders needed was more land. Barclays was left with thousands of lots and millions of dollars in loans it had to pay back, including to some of the county’s best-known banks.
“Nobody wants to buy lots. The demand’s just disappeared,” said John Dickson, president of Frontier Bank’s holding company in Everett, which is one of Barclays North’s lenders.
Dickson confirmed that Barclays isn’t alone. He said developers and builders who bought lots in the spring and summer of 2007, well after Barclays had stopped doing so, now find themselves in the worst position.
Focus on survival
By the end of 2006, McCourt knew his company was in serious trouble. Contracts with big builders to sell projects worth $150 million suddenly had disappeared. From that moment, the company’s focus turned to survival. Barclays North hasn’t made a single investment since then, and for the last two years, the company has had a single strategy: reduce real estate assets, increase liquidity and pay off debt.
The company’s plush conference space was turned into a war room. Drafts and charts now stretch across the walls. Three-ring binders with the details for each of Barclays North’s affiliated companies lay across tables.
Company leaders rolled up their shirtsleeves, guzzled pots of coffee during all-night work sessions and mowed through the company’s financial documents, searching for solutions. Stephanie McCourt, who had stepped down from her position as the company’s chief financial officer in 2005, began arriving at work with her husband to type, to make photocopies, to grab dinner and to do whatever she could.
McCourt said he’s determined not to file bankruptcy for the sake of his employees.
But there’s more to it than that.
McCourt overcame a tough background. He was on his own at age 15, graduated from high school with honors and started work for his uncle in the real estate business in Alaska. Succeeding at business has always been a matter of survival, he said. He didn’t want to raise his family under the same circumstances he experienced.
“No one was going to hand me life on a silver platter,” he said.
For a while, he flourished on sheer willpower and smarts. He possessed an uncanny ability to find land. But the cyclical natural of Alaska’s boom-and-bust real estate market caught up with him. His business fell apart, and on the advice of his lawyer, he filed for bankruptcy in 1985. He doesn’t want it to happen again.
The McCourts are well aware that developers are easy targets for criticism. Stephanie McCourt said her husband believes in the importance of what he does.
“He is a rare combination of compassion, strength and intelligence,” she said. “He does what he does for the benefit of others. Many times developers are taken under scrutiny, but when Patrick says he provides one of the three essentials of life (shelter), he means it.”
Since last fall, McCourt has conducted a weekly conference call with his lenders, who at one point totaled nearly 100, according to court records. He’s trying to renegotiate the terms of the loans and find a way to pay back what’s owed, and that strategy has been more successful with some lenders than others.
“Patrick has always been good at communicating with us,” Frontier’s Dickson said. “And if he says he going to do something, he does it.”
But at least one lender has told McCourt he’s crazy and that his company won’t survive this. A handful of lenders don’t believe the local market is as bad as he claims it is, he said. Cathay Bank, Bingo Investments, First Sound Bank, Shoreline Bank and Banner Bank have sued the McCourts to recover their loans.
“It’s important to us that our lenders and vendors are financially satisfied,” McCourt said. “All we have is our integrity. We owe them money. We signed for the funds. How do we argue with a lender for repayment that we owe them? You can’t. There’s no argument. There’s also no capital to satisfy that lender.”
McCourt also has courted capital investment firms across the country hoping to give his company an infusion of cash. He found investors skittish or the terms unacceptable. He doesn’t want to agree to a deal “that gives away the store” and leads to more layoffs or loss of local control for Barclays.
“Each time we would come to consummating a transaction, the news on a national basis would cause our capital company to step back and think twice,” he said.
What won’t work, he said, is holding on to the land until the market improves. Lot prices have dropped so much there’s no equity to rest on. So the company is selling. Those who are buying land are doing so at bargain prices.
“When a market stops, you have your contrarian investors who will buy at 40, 50 or 60 cents on the dollar,” he said. “That’s what’s happening in this market.”
At first McCourt hoped to hold on to some of the company’s most promising investments for the future, but he said the plan now is to sell everything, including personal investments. Whatever it takes, he said, to keep Barclays from going bankrupt.
Still making payroll
After the layoffs, 24 people now work in one of three buildings the McCourts own. Barclays is trying to lease the other two empty buildings.
In a recent stretch of 93 business days, McCourt said he eliminated 61 percent of the company’s debt. It’s a source of pride that the company hasn’t missed a payroll, despite failing to secure bridge loans or a capital infusion.
“Honest to God, I don’t know what’s next,” McCourt said.
If his company survives, he doesn’t know what form it will take. Now 53 years old, he can’t see himself working in any other business.
“Is a failure someone who throws in the towel and walks away?” he said. “No matter what happens, the people at this company can’t look back and say we’ve failed. We’ve done everything possible to generate positive results. If in the end there’s nothing left, we know we’ve given it everything, then we know we haven’t failed.”
Reporter Debra Smith: 425-339-3197 or firstname.lastname@example.org.
Coming Monday in Business: how the standstill in the home building industry has affected local lumber businesses.
According to court filings in Snohomish and King counties, Barclays North has dealt in the past year with 56 different regulated lenders, as well as another 40 or so unregulated lenders.
A few creditors have taken legal action against the company and Patrick and Stephanie McCourt in order to recover more than $4 million in loans.
First Sound Bank of Seattle filed suit in November to recover a $300,000 loan to the McCourts and their company. A Snohomish County Superior Court judge ordered the McCourts earlier this month to pay the bank nearly $331,000. A foreclosure sale of land in Lake Stevens is scheduled to help repay that debt.
Banner Bank of Walla Walla, at about the same time, filed to recover $500,000, plus fees, that it loaned the McCourts two years ago. A King County Superior Court judge ruled in favor of the bank, which has since tried to recover money from Barclays North accounts, including at Everett’s Cascade Bank.
Cathay Bank of California sued the McCourts to recover a $250,000 loan made by the bank in 2006. The bank said the loan wasn’t paid after the repayment deadline was extended until September 2007.
Bellevue-based Bingo Investments LLC alleges in a lawsuit filed two months against Barclays North and its affiliates that it is owed $2.6 million.
Shoreline Bank filed suit April 11 against the McCourts to recover a $500,000 loan to Barclays North.