The woods that broke the bank: development or preservation as park?

What's to become of the "Hundred Acre Wood," where Whatcom County's largest bank, an 88-year-old institution, went off the financial cliff one year ago?

Crosscut archive image.

Part of the proposed Chuckanut Ridge development in Bellingham.

What's to become of the "Hundred Acre Wood," where Whatcom County's largest bank, an 88-year-old institution, went off the financial cliff one year ago?

Walk a hundred steep yards up from Twenty-second Avenue, on the south side of Bellingham. A curtain of huge Douglas Fir and Western Red Cedar soaks up the street noise and suddenly you can hear your own heart thumping from the uphill push.

Bellingham walkers, runners, cross-country cyclists, and bird watchers call this the Hundred Acre Wood (presumably including some who never read Winnie the Pooh). Hundreds who spent decades trying to preserve it as parkland call it Chuckanut Ridge. To the owners and prospective developers, it’s Fairhaven Highlands. By whatever name, talk of its future lights Bellingham passions like the late winter sun flashing orange through a thousand trees.

These are the woods that broke Horizon Bank. The first bank in the U.S. to be closed in 2010, Horizon had invested heavily in a proposal to convert these hilltops into housing. There were many other Horizon investments that went sour, but the forested ridges and wetlands of the Hundred Acre Wood stand as a model of bankers’ and developers’ wishes going out of whack with reality. The feds point to these actual acres to define the “weak” lending and administrative practices that brought down the bank.

It was just over a year ago that Federal Deposit Insurance Corporation sent its charcoal suited take-over specialists into the bank with cartloads of huge briefcases and the authority to shut the place down. Over a weekend they transferred the bank’s assets to a successor, Washington Federal Savings and Loan. Those assets include a joint venture that owns Fairhaven Highlands, aka the Hundred Acre Wood.

Had Horizon Bank succeeded, the highest of the forested sandstone ridges — the one that overlooks the historic district of Fairhaven — would have been dynamited and shaved to make room for condominiums, apartments, and single-family houses. This and a somewhat lower ridge to the south were to sprout 739 housing units. A new road would cross forested wetlands that water two salmon streams, Padden Creek and Chuckanut Creek. The development’s main access road would connect to Bellingham by way of a two-lane bridge built by the WPA in 1932. Many doubt the likelihood of its holding up under the tens of thousands of truckloads of trees, rock, and soil to be hauled away before construction could begin.

Now that Horizon Bank is no more, a consuming question at this end of the Sound is what becomes of Hundred Acre Wood/Chuckanut Ridge/Fairhaven Highlands (choose one). The city of Bellingham very much wants to add it to the collection of gems in its celebrated park and trail system. Mayor Dan Pike told Crosscut a few months ago that he had offered the owners, on behalf of the city, an amount he still won’t disclose — something over $4 million dollars and less than $6 million — and that he was waiting for a reply, perhaps a counter-offer.

To be sure, Bellingham’s hard up, as are all cities, but citizens here vote periodically to tax themselves for amenities such as parks and bus service. The city’s offer is backed by funds from a greenway levy that were marked for south side parkland.

“I thought it would be resolved by the end of the year,” Pike told Crosscut on Tuesday. “But I’m still optimistic. The offer is still current, there is movement, and somehow we’ll get to a resolution.”

The mayor would offer no specifics. “I’d be surprised if we’re having this same conversation at the end of this quarter,” he said. “However, I can’t be at all certain.”

Washington Federal senior vice-president Tom Kenney told Crosscut on Monday that public ownership is still a possibility. “I can’t comment on specifics,” Kenney said, “But I can say there are discussions going on between all the various parties involved. I can only ask everyone to please be patient. This question has been around for more than 20 years. We’re working hard to come up with the right answer.”

Beginning in late December, rumors of failed negotiations were everywhere. City officials were thought to have let their offer expire at the end of 2010. Some expressed concern about the city’s dual role in deciding the use of property it’s trying to buy.

City Council member Michael Lilliquist, whose Ward Six includes Chuckanut Ridge, believed the city’s offer had lapsed. Lilliquist ardently supports city ownership of the property, but says the city’s role as potential buyer has made its role of land-use regulator more difficult. “Eventually the city will have to decide whether or not to approve a permit for the development,” Lilliquist said. “The city would be in a much simpler position if we had only the regulator role to play, rather than both.”

The buyer-regulator dilemma finds parallels throughout Washington. Municipalities trying to buy property at the same time they’re required to regulate its use find themselves in a difficult fix. Owner-developers can claim the local government interpreted environmental laws so as to lower the value of the property it seeks to buy. For a time in 2010, Bellingham City Attorney Joan Hoisington advised city council members not to talk to proponents or opponents of the development.

Officially, the Fairhaven Highlands development proposal still inches through the city’s approval process. Since Horizon Bank was closed, Bellingham has granted four deadline extensions of 120 days each for completing the Fairhaven Highlands environmental impact statement, drawing complaints from park advocates that the city is being far too lenient with the property owners.

Horizon’s (now Washington Federal’s) partner in the joint venture, Bellingham developer David Edelstein, considers the Fairhaven Highlands project to be alive and viable. He told Crosscut in early January that the “most important story” regarding the development project is still to come, but would say little more. He hinted at coming disclosures involving Bellingham’s dual role as land-use regulator and prospective buyer of the land.

Horizon’s joint venture with Edelstein was among the Horizon assets acquired by Washington Federal. But the joint venture exists on loans from Horizon Bank, and Washington Federal has now written off most of those loans as uncollectible. It would appear that the only thing of value still owned by the joint venture is the property itself.

A notably blunt report issued by the FDIC’s Inspector General cites those Horizon loans to illustrate what it calls “the weak underwriting and credit administration practices” of Horizon’s real-estate speculation.

“Although the purchase price of the property was $16 million, Horizon provided two loans for the project totaling $17.5 million of which $7.1 million was unsecured,” the report states. “No borrower equity was provided for the project.”

Over the next few years, “the combined loan amounts increased from $17.5 million to $24 million” while the owners applied for permits and worked on an environmental impact statement. By the time Horizon failed “$16.3 million of the underlying loans had been charged off.” That would leave a Fairhaven Highlands value on Washington Federal’s books of no more than $8 million, slightly more than the city is offering for the land.

Horizon Bank faced a damaging public fight in trying to develop Fairhaven Highlands. It’s widely believed that its disintegrating relations with the Bellingham community furthered its downfall. A remarkably well-organized and well-financed citizens’ group called Responsible Development made Horizon Bank its target. An open letter published as an advertisement in the Bellingham Herald carried more than 800 signatures of local residents attacking Horizon for planning to destroy Chuckanut Ridge. Bank customers very publicly withdrew millions in deposits and borrowings.

Washington Federal has said clearly that it doesn’t want to be part of any community dispute, and has no interest in developing the property through its joint venture with Edelstein. “We’ve said all along that we don’t think of ourselves as developers,” Kenney told Crosscut. That does not seem to mean the bank wouldn’t sell it to another owner who could try to develop it.

The bank is required to get a fair return for its shareholders and to seek the highest return on the assets it acquired from Horizon. State and federal regulators will need to sign off on any deal the bank might reach with the joint venture or with the city of Bellingham. “There are a lot of players involved,” Kenney said. “That’s why this has taken a while.”


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About the Authors & Contributors

Bob Simmons

Bob Simmons is a longtime KING-TV reporter who has been writing news for print and television for 65 years.