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Colt Headed for Failure?

Critics of Colt developer Robert MacFarlane say all his projects run aground and his company is in debt. But MacFarlane says his project is on track. Here's what we know.

By DANIEL D'AMBROSIO, Hartford Advocate Staff Writer

November 01, 2007

An investigation by the Advocate has revealed the money problems at Colt Gateway — the renovation of Sam and Elizabeth Colt's 19th century firearms factory into commercial and residential space — appear to be far worse than the developer has disclosed.

Rebekah MacFarlane of Homes for America Holdings told the Advocate in September that her company had run out of money to spend on Colt Gateway, and needed a grant from the state to complete the project.

MacFarlane said the company needed $10 million to pay off a loan from Las Vegas-based USA Capital, which is in bankruptcy, before work on Colt Gateway could begin again. Nothing has been done on the site for months.

What MacFarlane failed to mention, however, is that as of February 2007, Homes for America owed a total of $59.57 million in "non-performing loans" to USA Capital that it has not repaid, including $23 million in principal and interest on the Colt property alone.

The loans outside of Colt were for two proposed condominium projects in Florida, and the Windham Mills project in Willimantic.

Like Colt, Windham Mills is a former industrial site, home to American Thread Company for more than 100 years before the company moved out of Connecticut in 1985. An effort to convert the complex of buildings into a light manufacturing center went bankrupt in 2004, before Homes for America became involved.

In addition to its debt to USA Capital, which must be repaid regardless of the bankruptcy, Homes for America owes the City of Hartford $473,000 in property taxes that were due in August. Another $473,000 will be due in January.

That would be enough to make most mere mortals choke up with anxiety.

But Robert MacFarlane, Rebekah's father and chief executive officer of Homes for America Holdings, sounded supremely confident on Monday, when he told the Advocate his company was within weeks of settling its entire debt with USA Capital, and that work on Colt Gateway will begin again by the end of November.

MacFarlane also said the August property taxes will be paid on Nov. 6, and that the January taxes will be paid on time.

"Upon completion the site will become a U.S. National Park and you'll have people from all over the world stop and visit," said MacFarlane.

The National Park Service is currently considering national landmark status for Colt, the first step toward creating a national park.

But other developers in the state, who declined to go on the record, said that for a glimpse of Colt Gateway's future, forget the national park, and take a look at Windham Mills, which they say MacFarlane abandoned after promising the world.

That's the view of Windham First Selectman Mike Paulus too.

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A stunning three-story grey granite building on the banks of the Willimantic River, Windham Mills was built in 1864 with rock quarried from the river bed. After a long run at the center of the thread-making universe, the building sat vacant for nearly a decade after it was abandoned in 1985.

Paulus said the town took over the property in 1994 through eminent domain, then formed the quasi-public Windham Mills Economic Development Corporation to develop the property. The plan from the get-go was to bring in light manufacturing and the jobs and property taxes that would go along with it.

"Typically manufacturing jobs are decent paying jobs," said Paulus.

The first order of business was to tackle the environmental cleanup required. In spite of attracting grants totaling $15.4 million, and a $2 million grant from the Town of Windham, the enormity of the clean-up, combined with other factors, proved too much for the development corporation, which filed for bankruptcy in 2004.

Enter Homes for America Holdings, or Robert MacFarlane, which Paulus says bought out the property by taking over a $5.5 million mortgage from a Rhode Island investor.

USA Capital's bankruptcy records indeed show a $5.5 million loan to Homes for America for Windham Mills, but MacFarlane maintains his company only agreed to manage the property and that USA Capital itself bought out the mortgage.

How does he explain the records showing his company owing USA Capital $5.5 million for a loan on Windham Mills?

"Because someone ascribes that in bankruptcy court doesn't mean documents support that," argued MacFarlane. "We never owned the mortgages."

Mortgage dispute aside, Paulus said Homes for America seemed at first like a white knight for the beleaguered Windham Mills.

"We indicated we wanted to stick with the original plan of light manufacturing," said Paulus. "They pledged they would work on that."

Two years later, says Paulus, no progress had been made in securing manufacturing tenants for the site. MacFarlane returned to the Windham Mills board with a new plan. He wanted to abandon light manufacturing and go residential with nearly half of the building's total space — some 110,000 square feet.

"They were basically coming in saying 'We've been out there working hard, but the site just won't attract manufacturers or business,'" said Paulus.

The board responded by asking for proof, including rejection letters from prospective tenants, to be submitted to town attorney Rich Cody.

It didn't go well.

"(Cody) said 'I'm not getting anything from these guys that is telling us anything. It's a lot of hot air,'" remembered Paulus. "I felt like we spun our wheels for two years with a lot of promises."

MacFarlane rejected Paulus' version of events, saying he gave Cody the names of "at least 30" different lenders Homes for America had approached with the light manufacturing plan without success. Before the board could take a vote of no-confidence in MacFarlane, Homes for America pulled out of the project.

A trustee has been appointed to guide Windham Mills out of bankruptcy. Paulus said the property will likely sell for as little as $5 million.

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In addition to its money problems, Homes for America is also raising the ire in Hartford among other landlords by trying to woo away state agencies as tenants for Colt Gateway, according to Ruth Schaefer of the Schaefer Belmont Group.

Schaefer owns the building at 110 Bartholomew St. in Parkville, where the state Department of Children and Families currently has offices housing 300 employees.

"Colt has been negotiating for several months to take DCF out of Parkville and move it into (Colt Gateway)," said Schaefer. "They're talking about moving 300 employees out of Parkville. Because (Colt Gateway) is failing, the state wants to do whatever they can to make it work. How many buildings are they going to subsidize and then put state agencies in as tenants?"

The state Department of Public Works declined to confirm DCF is considering a move to Colt Gateway. But Richard Ott, owner of DesignSourceCT just down the street from Schaefer's building, is convinced a move is in the works.

"Indirectly it would affect the whole neighborhood," said Ott. "Why take (the DCF offices) out of one neighborhood to fulfill the needs of another? Parkville ends up losing. This would be seen as a kick in the teeth to Parkville."

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Overall, both the city and the state are adopting a wait-and-see attitude toward Colt Gateway and Homes for America although their concern comes through loud and clear even in their guarded comments.

John Palmieri, Hartford's outgoing director of development services, said the city is still committed to an $8 million TIF, or tax increment financing, bond for the Colt project, but it won't move forward with the bond until "we know the project is on firm financial footing." Under the terms of the TIF, the city would pay off the bond with a portion of the taxes generated by a completed Colt Gateway.

"Obviously we had confidence that MacFarlane and team would bring the project over the finish line," said Palmieri. "Obviously we're concerned about the present predicament."

Joan McDonald, commissioner of the Department of Economic and Community Development, said last week she met with Rebekah MacFarlane on Oct. 9 to discuss the future of Colt Gateway. At the meeting, said McDonald, MacFarlane "verbalized they needed state assistance," but didn't ask for a specific amount.

While McDonald hasn't ruled out further assistance to Colt Gateway — DECD has already committed to about $6.5 million in grants and low-interest loans — she made it clear it would take more than promises and reassurances to further loosen the state's purse strings.

"We would consider any proposal as long as they have financing, have dealt with the USA Capital issue and are ready to go forward," said McDonald. "We want to see a real proposal."