Tuesday, October 06, 2009
We are still very much on vacation, on our way from Maine to somewhere in upstate New York today, but, it seemed a shame not to share this story (hat tip MD) about our new hometown a few thousand miles west of where we are at the moment.
It seems that, in a follow-up to a previous story about mortgage fraud in the area, roving recession reporter Christina Davidson of The Atlantic has stumbled upon one of the handful of stories that best capture the 2005-era housing mania - The Shire in Bend, Oregon.
We've been to this place and, believe me, the pictures in this article provide a completely different impression than the one you'd get if you drive into the six acre development...
It's also a very sad tale, as Christina describes.
In doing advance research about foreclosures in Bend, Oregon, I happened across local news coverage of a most absurd housing development. A planned community with Old World architectural detailing designed to resemble a Lord of the Rings hobbit village, the Shire represents a prime example of irrational excesses that an untrammeled housing market can nurture. I intended to take pictures of the now bankrupt and foreclosed development so I could write a post ridiculing those behind its creation, until I learned one of them had committed suicide.A normal posting schedule will resume sometime toward the end of next week as we'll be working our way slowly across the country between now and then.
The Recession Roadtrip charted a course through Bend in central Oregon specifically because of the community's unusually high rate of foreclosure. At around 4 percent, Deschutes County's per capita foreclosure rate is half that of Vegas, but still two to three times any other county in Oregon. As I wrote last week, the fairly pervasive role of mortgage fraud throughout the local real estate market's expansion sets up the community for a steep fall.
Developer Ron Meyers originated the concept of building a community inspired by medieval fantasy and Old World architecture. He partnered with former emergency room doctor Lynn McDonald to secure financing for the project. Lynn and his wife Janet signed for a $3.4 million loan from Umpqua Bank in December 2004, and building began in fall 2005.
The Shire's artificially thatched-roof cottages would have dragon-shaped support beams and "hobbit holes" instead of tool sheds, and come with fantastical background stories and names like "Butterfly Cottage" or "Thatcher House." The meticulous landscaping includes stone paths along a man-made pond and a burbling stream, traversed by way of a rustic wooden bridge. The inhabitants were to adhere to a "Declaration of Interdependence" listing both practical and feel-good neighborly codes and covenants.
By the time the real estate market started to decline, only one Shire house had been completed and sold--for $650,000. A second nearly-finished house, "Butterfly Cottage," was unsuccessfully listed for sale at $899,000 in July 2008, the same month a notice of default on the development was filed with the Deschutes County Clerk's office, and just a couple of weeks after Lynn McDonald committed suicide. At the time of his death, Lynn and Janet McDonald owed Umpqua Bank more than $3 million.
Butterfly Cottage never found a buyer, and the bank foreclosed after the development failed to sell at public auction in December. The six-acre 14-lot property, including one nearly completed house, languished on the market for many months, listed at $1.3 million for the whole package.
In May, Castle Advisers LLC, a Hood River-based private equity firm that says it represents investors across the country, nabbed The Shire for a firesale bargain price of $750,000. The firm is re-branding the community "Forest Creek," and plans to sell off lots individually over the next five years as the market recovers.
NOTE: After writing two unflattering pieces from Bend, Oregon, I feel like I need to voice a disclaimer on behalf of its residents. I don't mean to paint Bend in a negative light; it's a beautiful little community and everyone I met there seemed incredibly nice. Also, the local Deschutes Brewery makes an excellent microbrew: Jubelale.
Gold at $1,025... Yikes!