Thursday, August 20, 2015

City scores big win in Banning Lewis Ranch bankruptcy case

Posted By on Thu, Aug 20, 2015 at 12:58 PM

click to enlarge Most of the Banning Lewis Ranch remains to be developed, with the hang-ups being the economy and the annexation agreement. - PAM ZUBECK
  • Pam Zubeck
  • Most of the Banning Lewis Ranch remains to be developed, with the hang-ups being the economy and the annexation agreement.

The City of Colorado Springs has prevailed in a decision in bankruptcy court that says the Banning Lewis Ranch annexation agreement is not a contract, meaning it can't be set aside to make it less costly for developers to convert the 17,760 acres into subdivisions.
However, the David Jenkins family, ("Building an empire," Nov. 19, 2014) the biggest developers in the Pikes Peak region, won't concede quietly. They've filed an appeal to the U.S. District Court, meaning the case will continue.
click to enlarge This shows how much of the city is represented by the Banning Lewis Ranch. - COURTESY CITY OF COLORADO SPRINGS
  • Courtesy city of Colorado Springs
  • This shows how much of the city is represented by the Banning Lewis Ranch.
At issue is whether the annexation agreement, adopted by City Council in 1988, mandates that developers pay for all infrastructure, from streets to fire stations, which totals $11,910 per acre, under an annexor obligation fee adopted by the city in 2007.

A California company that owned the ranch filed for bankruptcy in Delaware in 2010, and the following spring announced an auction in which the land would be sold "free and clear" of liens, claims and other encumbrances.

This is where the city intervened in the case to assert that the property couldn't be sold free and clear of the annexation agreement.

Ultra Resources, a Houston-based oil company, bought most of the land for $20 million. A couple thousand acres was sold to Oakwood Homes at that same time. The sales were approved, but the question of the annexation agreement continued after the case was transferred to U.S. Bankruptcy Court in Denver. Ultra wanted the annexation agreement set aside, because it planned to drill for oil and gas on the property, not develop it for homes and businesses. When testing for minerals came up dry, Ultra was no longer interested in the property and sold it last November to Jenkins-controlled Banning Lewis Holdings, BLH No. 1 and No. 2 for $28 million. BLH then stepped into the bankruptcy case to take Ultra's place.

Here's what U.S. District Judge Howard Tallman said about the annexation agreement being an executory contract that could be set aside by a trustee in a bankruptcy case:

In this case, because the Agreements are of the type that run with the land and are properly recorded, the Agreements are not only valid and enforceable among the non-debtor parties such as the City or the other Annexors, but they are also binding on the Debtor’s successors in interest.
The Independent paid for several court records from the case so that some of them could be shared with readers.

Here's the decision:

The court also dismissed developer Randy Case's motion to intervene as an owner of the land that once was part of the ranch.

Here is BLR's notice of appeal:

What does all this mean? It means that developers are still trying to get out from under an annexation agreement they see as onerous, because of the estimated $1-billion cost of building infrastructure.

The appeal could be a way for Jenkins to create leverage with the city to negotiate a new annexation agreement, and that might not be a bad thing, if the city can fold into that agreement the transfer of some 12,000 acres of open space into a conservation trust, or into the city's open-space portfolio.

So in other words, this saga continues. So stay tuned.

We reached out to David Jenkins' son, Chris, for a comment but haven't heard back. We're also seeking a comment from the city and will update if and when we hear something.

As a footnote, Colorado Springs Utilities, which is involved in this court action due to its interest in water rights that are at issue, as well as the city is represented by Sherman and Howard. The city is represented by Hogan Lovells.

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