By Sara Hamilton and Stephen Nellis

Developer Jeffrey Bermant faces claims by Rabobank that he failed to repay $9.8 million of $21.4 million in loans on the Monte Sereno community under construction in Arroyo Grande.

Bermant’s troubles underscore a housing market crash so deep it has forced developers with successful track records into workout mode. His snag comes as unrelated projects such as Chapala One in Santa Barbara and Lavender Court in Carpinteria confront problems in repaying debts.

Bermant’s Santa Barbara-based Bermant Homes borrowed $21.4 million for Monte Sereno, and Bermant personally guaranteed the loans, according Rabobank’s complaint, filed April 7 in Santa Barbara County Superior Court. Bermant Homes has repaid more than $12 million in principal and interest, but company president John Campanella said tight homebuyer credit has hampered the firms’s efforts to keep paying.

Bermant Homes is in talks with Rabobank to rework the loans and prevent foreclosure, Campanella said. He said Rabobank demanded full repayment in late March and the bank has filed a notice of default.

“Out of deference to our client, we decline to comment,” said Rabobank Communications Manager Andy Frojker.

Bermant Homes has sold just three homes and 12 lots from the 31 sites at Monte Sereno.

“We’re hoping something can be worked out to modify the loan – we think that’s best for the community,” Campanella said. “We’re a community builder, they’re a community bank, and we’ve got a community of people up there already living in Monte Sereno.”

Among its projects, Bermant Homes is building 48 affordable townhomes on Montecito Street in Santa Barbara and a mixed-used project with 31 condominiums and 6,000 square feet of retail space in San Luis Obispo.

“We’ve successfully come to agreements with our other lenders on other projects, and this is the only one that we need to work through,” Campanella said, without offering specifics.

Campanella characterized Rabobank’s lawsuit as a routine legal step to protect the bank’s position.

“That’s not to say we can’t continue discussions, but [Rabobank] went for what their rights are under the note and deed of trust under the loan,” Campanella said.

Bermant Homes secured the loans for Monte Sereno in 2006, according to Rabobank’s lawsuit. Mid-State Bank & Trust made the loans before its 2007 acquisition by Rabobank, a Dutch banking giant that’s established a large presence in Central California.

With both home prices and development costs still sky-high in 2006, Bermant Homes planned for houses ranging from 3,500 to 5,000 square feet on the lots.

“It’s taking longer than anybody envisioned [to sell Monte Sereno] because the market has changed,” Campanella said. “These are not permanent-type loans. These are loans that … are based on an anticipation of when you can be completed [with the project] given normal market conditions when you started.”

The most recent lot sale in Monte Sereno came in at $345,000 about a month ago and the most recent home sale at $1.4 million about six months ago, said Chris Richardson, broker and managing partner at Richardson Properties, the firm selling the sites. Richardson listed remaining lots from $417,000 to upwards of $600,000 but said the average listing price is hovering at around $500,000.

Richardson said that given Monte Sereno’s unlucky market timing, sales have gone well.

“The bottom line is that half of the subdivision has been sold,” Richardson said. “There are a lot of new home communities out there that haven’t even sold 10 percent, and Monte Sereno has already sold over half. It’s not like it’s dead on the vine. It’s slow everywhere.”

To Richardson, the respectable sales figures speak to the solid reputation Bermant has gained in years of South and Central Coast development. Bermant’s company “had good intentions – if anything, they put too much effort into the properties,” Richardson said. “Developers aren’t being rewarded for that now since the market has changed.”

Campanella said tight credit markets have hurt the project because large home loans are harder to come by even for buyers with good credit.

“One of the keys to any of this is financing,” Campanella said. “The individual owner would have to be able to finance the acquisition of the land and then have a loan that could finance the construction of the house.”

Campanella said he’s optimistic that Bermant Homes will be able to hammer out an agreement to keep Monte Sereno off the auction block.

“The project will retain value over time,” Campanella said, adding that a distressed sale of lots in bulk would be a poor solution. “That doesn’t help anybody.”

[Editor’s Note: In the May 8 edition of the Business Times, the print version of this story misspelled Bermant’s first name.]

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