Out with the old

Page 4 of 6

Ken Tims remembers the initial shock of learning that nearly 400 apartments would be going in not far from his house.

A resident of the Tonka Vista development southwest of Desert Crest, Tims thought he and his neighbors had already been through enough.

Their bucolic collection of large ranch houses lost much of its access to neighboring parts of Phoenix when the Squaw Peak Parkway was constructed in 1990. Traffic into the area south of Glendale Avenue and east of the freeway now is restricted to two small streets.

That's made getting in and out more of a hassle, but it's also reduced cut-through traffic, which benefits property values. But with such narrow access to the neighborhood, residents jealously protect their homes from the prospect of increasing population and cars. Several past projects have been scuttled by resident activism.

JPI's plans to put 400 apartments in the middle of the neighborhood, where 100 seniors--most of whom don't drive--presently live, have Tims dreading the impact on his peaceful street. He and other members of four local homeowners associations have mounted an offensive against the foundation's proposed sale to JPI. At a January 6 bankruptcy hearing, Judge Redfield Baum told the packed courtroom that he'd never received so many letters about a case. Neighbors united against the development have also sent letters to Bishop O'Brien and have lobbied Phoenix village-planning committees as well as city and state politicians. The City of Phoenix may be able to do nothing about the matter, however. Desert Crest sits atop land zoned for high-density multifamily dwellings. JPI won't have to seek rezoning for its plans.

It wasn't long before Tims and his neighbors realized that Desert Crest's seniors were also facing a dismal future.

"We have residents at Desert Crest who have lived there many years and planned to spend the rest of their lives there. We thought, what's going to happen to them?" says Tims. "There's already a significant shortage in that kind of housing and a huge waiting list at most places. A few of the neighbors have parents or close friends in Desert Crest."

Lyle Six is one of those. The retired AlliedSignal engineer lives in the neighborhood; his 97-year-old mother, Daviejean, lives at Desert Crest. Six says he began bringing Desert Crest residents such as Mac McCullough to homeowners-association meetings. He says McCullough educated homeowners who had wrongly assumed that if Desert Crest was bankrupt, it must be a run-down eyesore.

Now, Six is angry that the possibility of saving Desert Crest is not being offered in the bankruptcy proceedings.

"There's nothing before the judge that could possibly be satisfactory to the residents or neighbors," he says. "Guy [Mikkelsen] disappoints me. You always had the impression that he and the church considered Desert Crest to be one of their most important projects. . . . Instead he gets a commercial developer as a partner. Well, what earthly interest does the church have in making that a commercial property?

Six wonders if there isn't another possibility. He suggests a "cram-down"--a court-ordered reduction of the retirement home's debt to equal its current value. "I think the judge would buy it. And that's the only way to save Desert Crest."

Asked to explain why the Foundation for Senior Adult Living wants to sell Desert Crest to apartment-building giant JPI, Guy Mikkelsen told The Business Journal, "If the note holder recovers the property, we believe they'll turn around and sell it to someone who will do the same, exact thing."

In other words, it makes no difference who does the demolishing. Either way, Desert Crest gets the wrecking ball.

But a detailed look at FSAL's bankruptcy pleadings shows that Mikkelsen and the church-affiliated foundations do have incentives for pursuing their deal with JPI--recouping cash for the diocese foundations.

Under the most likely scenario presented in the proposed bankruptcy sale, JPI would settle the foundation's debt with MMT, the note holder. And it would also pay off Desert Crest's unsecured creditors.

Compared to the crushing $5 million debt claimed by MMT, those unsecured amounts are relatively minor. The Home Depot, for example, is owed $1,165, and SRP is owed $7,000. Many creditors are owed less than $1,000.

But one unsecured creditor tops the list. It's the Foundation for Senior Living (FSL), which, of course, controls FSAL. And it's owed $152,000.

Under the conditions of JPI's proposed purchase, the Foundation for Senior Living would get its money. But if MMT is allowed to foreclose on the mortgage, unsecured creditors--including FSL--would probably not see their cash.

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Tony Ortega
Contact: Tony Ortega