Tom Terminella says it was banks, not developers, who acted recklessly prior to the peak of Northwest Arkansas’ residential building boom in the mid-2000s.
Once one of the region’s top developers, Terminella blames Little Rock-based Metropolitan National Bank in particular for the loss of the fortune he amassed during his real-estate career of more than 20 years. He vows that through litigation, he will shut down the bank, which has been sanctioned by banking regulators for unsafe lending and remains $33 million short of capital it needs to meet minimum federal requirements, according to the bank’s third-quarter report.
“They’re a zombie bank, and they’re the walking dead,” Terminella said. “I want justice served. I want them shut down before they have the opportunity to victimize other developers whose loans they repudiated.”
Terminella, 44, of Fayetteville claims Metropolitan’s foreclosure in 2007 on his Grand Valley Ridge development in Springdale started a domino effect that halted his projects and cost him millions in land and collateral. The one-time wunderkind lost most of his assets as the building boom flamed out, and many of his properties were deeded back to the banks or sold at foreclosure auctions, court records show.
So far, courts have dismissed all of Terminella’s claims against Metropolitan. However, he sued again last month in Washington County Circuit Court, citing negligence and interference with business. He wants a jury trial in hopes of proving the bank should be held liable for the failure of the Grand Valley Ridge project.
Susie Smith, Metropolitan’s senior executive vice president, said Terminella has no basis for any further court action.
“The allegations that Mr. Terminella is still pursuing have already been addressed in the three previous lawsuits that he has filed, and the courts have found in our favor in all three of those cases,” Smith said. “Mr. Terminella’s campaign against Metropolitan National Bank has ended. Mr. Terminella has no new allegations.”
In the 1990s and early 2000s, Terminella was a key player in turning vast stretches of pasture and farmland in Benton and Washington counties into thriving, mixed-use subdivisions. Like other high-profile developers, he made multimillion-dollar deals as the region’s population exploded and banks lined up, eager to lend money for large-scale residential and commercial projects.
But late in 2006, the real-estate bubble burst and banks began to rein in their lending. Terminella was stuck with multimillion-dollar loans he couldn’t immediately repay, according to court documents.
Through attorney Robert Ginnaven, Terminella said “predatory” banks like Metropolitan “are the riverboat gamblers that cruised into Northwest Arkansas” at mid-decade to cash in on the rush to build homes — especially luxury dwellings — for the hundreds of people moving into the region each month.
Although Terminella was an experienced developer, Ginnaven said, he made the mistake of trusting Metropolitan “to engage in safe and sound lending practices.” Terminella said he believes the bank foreclosed on Grand Valley Ridge because the bank was in trouble with federal regulators and trying to conserve capital.
Metropolitan foreclosed on the property in May 2007, saying Terminella and his partners defaulted on the $9.63 million loan funding the project. The case spawned a slew of countersuits and appeals, and a gag order was issued for both sides. Court documents show heated negotiations leading up to the bank’s foreclosure.
Terminella agreed to one interview Nov. 4 before refiling a lawsuit about Grand Valley Ridge. Neither the attorneys nor the judge were certain when asked in late November whether the gag order was still valid.
A loan officer remarked in a 2007 memo that the bank could “take down” Terminella and the other loan guarantors, which Terminella’s attorneys took as a threat against him and his family.
Two months after the foreclosure was filed, Terminella countered with a suit against Metropolitan, claiming the bank breached its contract with him and his partners by failing to fully fund the project under the original mortgage agreement.
In February 2009, Washington County Circuit Judge Kim Smith dismissed the counterclaim, ordering Terminella and his partners to pay more than $7.6 million on the loan balance and granting foreclosure of the Grand Valley Ridge property.
Terminella appealed, and on Oct. 28, the Arkansas Supreme Court ruled that the lower court failed to address the negligence complaints originally filed in a countersuit. The ruling stated that the trial court must resolve those issues before the Supreme Court would consider the case.
The Fayetteville-based developer said he was encouraged by the ruling. On Terminella’s behalf, Ginnaven on Nov. 22 filed the latest lawsuit against Metropolitan. Among its claims are that the bank was negligent in failing to pay for needed piping at Grand Valley Ridge, stalling progress on the project and leading to the foreclosure.
“They’re going to get their asses kicked during the second half of this ball game,” Terminella said.
Tim Yeager, associate professor in the department of finance at the University of Arkansas at Fayetteville, said he isn’t familiar with the particulars of Terminella’s dispute with Metropolitan, but he pointed out that the recession didn’t begin until December 2007. Any actions by Metropolitan in spring 2007 occurred “well before we realized the financial crisis that was about to come.”
But it was about that time that banks like ANB Financial of Rogers, an aggressive bank that specialized in commercial lending, caught the attention of federal banking regulators, said Yeager, who also holds the Arkansas Bankers Association chair at UA.
The federal Office of the Comptroller of the Currency identified problems with ANB in 2005, including an unusually high number of loans behind schedule or in default. The comptroller reprimanded the bank in June 2007, citing “unsafe and unsound banking practices,” according to an audit made public after the bank was shut down in May 2008.
Examiners were beginning to realize late in 2006 that banks were becoming dangerously exposed by a heavy volume of commercial lending, Yeager said. But, he added, “I’m sure that banks couldn’t turn around and start calling loans randomly, so this causes me to speculate that there was something else going on with [the Grand Valley Ridge] loan that caught Metropolitan’s attention.
“If [a bank] is going to call a loan, there’s a reason for it. [Metropolitan] saw something that was troubling,” such as Terminella’s financial weakness, Yeager said.
Banks build their business on relationships and don’t want to ruin those without reason, he said.
As for Terminella’s claim that the banks, not developers, need to be held responsible for overbuilding in the region, Yeager said the banks have been held responsible through defaults, “and Metropolitan has had huge defaults.”
Metropolitan had $1.8 billion in assets when it was sanctioned in May 2008 by the Office of the Comptroller of the Currency, according to an Arkansas Democrat-Gazette article. Areas of concern included maintaining sufficient capital and identifying problem loans and problem assets. The bank, with 13 offices in Northwest Arkansas, had 38 percent of its loans in construction and development.
In 2008, a typical bank put 16 percent of its money into commercial and development loans, Yeager said.
Regulators began looking at Metropolitan about the same time that bank officials were meeting with Terminella to work out a new financing agreement on Grand Valley Ridge, court documents show.
The bank was getting desperate, Ginnaven said. It needed more capital and was going after Terminella and his family to get it, he said.
HUMBLE BEGINNINGS
Terminella, the youngest of eight children of Julia and the late Emmanuelle Terminella, moved to Northwest Arkansas about 1970. His father was a meat broker who moved the family from New York and went to work for Tyson Foods Inc., Terminella said. His mother’s family ran a duck farming business.
Terminella said he started with nothing. From an early age, he had incentive to work hard and earn a name for himself, he said.
While most of his peers at Fayetteville High School were flipping burgers after school, Terminella started a car-wash enterprise and studied for real-estate exams. He went right into the real-estate business as a teen after graduating in 1985, working for companies such as Century 21. In 1987, he earned his Realtor’s license, according to the Arkansas Real Estate Commission.
In 1992, Terminella formed TJ Custom Realty LLC with Cathy Van Someren and the late Tim Van Someren. By 1995, the company had an inventory of 450,500 lots developed or in development and expected sales that year of $30 million, according to an August 1995 article in Arkansas Business.
TJ Custom Realty dissolved in 1997 and Terminella went out on his own, forming Terminella & Associates Inc. Realtors LLC, which he heads today, according to Arkansas secretary of state’s office records. During its heyday in the early 2000s, the company employed about 40 agents, Terminella said.
He also formed a development company called Terminella Inc. in 1997. Buying more than 1,000 acres of farmland, he made a name for himself as a developer of upscale subdivisions featuring large homes that sold for $250,000 and up. He oversaw his projects, spread over the two counties, from his helicopter, he said.
His peers said Terminella commanded an in-depth understanding of the real-estate market.
“He was a very competent business person,” former developer and business partner Gary Combs said. “He had lots of studies on his projects so that when he went into a job, it was well documented.”
Combs, who’s had his own issues with Metropolitan and lost millions in the economic downturn, has known Terminella for about 20 years and partnered with him on several projects, including the Candlewood subdivision in Springdale. The two have sued each other several times.
Terminella is known as an aggressive businessman, Combs said. He is willing to take risks and has an edge because of his real estate background.
“He’s like the rest of us,” Combs said. “He worked hard to get where he is.”
Another former associate, Fayetteville architect Marlon Blackwell, called Terminella a focused businessman who knows what he wants and is not afraid to go after it. Blackwell worked with Terminella in the late 1990s to renovate the old Hatfield Building in downtown Fayetteville, where Terminella’s offices now are located.
Terminella expected his partners to work just as hard as he did, Blackwell said.
“You have to prove yourself to Tom along the way,” he said. “You have to be as strong as Tom as far as getting things done.”
GRAND DESIGNS
Washington County’s population grew by 14.4 percent between 2000 and 2005, from 157,715 to 180,357, according to U.S. Census Bureau estimates. Benton County’s population grew 21.9 percent during that time, from 153,406 to 186,938.
Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville, said that in the early 2000s, many developers perceived a need for upscale homes for employees of vendor companies serving Bentonville-based Wal-Mart Stores Inc. But the reality was that not all new arrivals were highly paid professionals, she said.
The population growth was in a wide variety of income brackets, “So where we ended up is with the upscale market being overbuilt, even with substantial migration,” Deck said.
While a handful of builders began developing homes priced at $150,000 or lower, Terminella and most others continued building homes priced above $250,000 — often much higher, according to Arkansas Democrat-Gazette articles at the time.
In September 2005, Terminella and Mark Foster, president of Dunnerstock Development Inc., applied to Metropolitan for the $9.63 million loan to finance the 101-lot Grand Valley Ridge subdivision on Butterfield Coach Road in Springdale.
Two months later, they applied again to Metropolitan as Bentonville USA Development Inc., this time seeking $4.9 million to refinance the commercial portion of a development called Cornerstone Ridge on Arkansas 12 west of Rainbow Curve in Bentonville.
In a commercial credit memo regarding the Grand Valley Ridge loan application, loan officer Susan Slinkard stated that Terminella’s net worth was $16.18 million, with liquid assets of $1.95 million. He had little personal debt except for his home in Fayetteville and a second home in Marion County near Bull Shoals Lake, a popular recreation area in north-central Arkansas.
Foster listed a net worth of $15.77 million with liquid assets of $455,000. Foster declined to comment for this article.
Noting Terminella’s more than 20 years of experience in Northwest Arkansas’ real-estate market, Slinkard wrote that he “has been quite successful in identifying areas of growth potential and capitalizing on those opportunities.”
“Tom works with numerous prominent builder groups in NWA to selectively acquire desirable properties and develop the size and type of lots that builders are requesting and the market is demanding,” she wrote. “Tom partners with individuals and groups that are in tune with the market and financially strong.”
TROUBLE BREWING
The first hint that Grand Valley Ridge might be short on cash came in September 2006, when Terminella asked Metropolitan if a $500,000 certificate of deposit pledged as collateral could be used to cover future interest payments on the loan. In court documents, the bank said it authorized the use of about $200,000 of the CD funds, but Terminella paid interest through December and never asked that the CD funds be used.
In January 2007, Terminella asked to meet with Slinkard, who has since left the bank, and Larry Olson, its Washington County president, to discuss amending the terms of interest payments on the loan. Olson followed up with two letters to Terminella inquiring about the status of the proposed changes but got no response, according to court documents.
On Feb. 26, 2007, Olson and Slinkard e-mailed the loan committee of Metropolitan’s board of directors to report that Terminella’s liquidity had become strained. His Cornerstone Ridge project had failed to sell any lots, and no work had been done on Grand Valley Ridge for a year, according to the e-mail.
“The 2006 slowdown has hit [Terminella] hard and he has suffered, as have most all developers, with reduced level of sales,” Olson and Slinkard wrote.
Both Olson and Slinkard declined to comment for this article.
In a deposition given by banking officer Mark Murphy in 2008, Murphy said Olson and Slinkard had a “misunderstanding” with Terminella about whether he could use his $500,000 CD to pay the interest and not go into default.
According to Murphy’s deposition, Olson and Slinkard wrote in the 2007 memo to the loan committee, “It seems like we are somewhat being held hostage by Tom’s request when, in reality, we should be in the driver’s seat with our ability to take Tom and the guarantors down if they don’t perform at our demand.”
However, Olson and Slinkard also told the loan committee that Metropolitan may be “better served by working with Terminella.”
On March 28, 2007, seeing trouble coming, Terminella met with officials from about nine banks that had loaned him money, urging them to work with him instead of foreclosing on his property, according to court documents. Foreclosures would further devalue the property and hurt the banks’ pocketbooks, Terminella told them.
Terminella friend Jim Lindsey attended the meeting and personally asked Metropolitan not to foreclose on the Grand Valley Ridge property, court documents show. Lindsey declined to comment for this article.
On May 16, 2007, Terminella received a forbearance agreement from Olson. Terminella didn’t like the offer, he said. It required him to pay half of the interest that was due each month, as opposed to one earlier proposal to pay the interest in a lump sum on maturity of the loan in 2008.
Metropolitan filed foreclosure petitions on both Grand Valley Ridge and Cornerstone Ridge on May 30, 2007.
Terminella eventually filed suits and countersuits in Washington, Benton and Pulaski counties against the bank, its board members, employees including Slinkard and Olson, and bank President and CEO Lunsford Bridges. The suits claimed the bank was involved in unfair and unsafe banking practices, misled Terminella, failed to act in good faith, broke its contract with him, was negligent and bribed witness and former partner Tom Morter not to testify on Terminella’s behalf during court hearings in Washington County.
All of those suits were dismissed or decided in Metropolitan’s favor. Terminella and his partners owe Metropolitan and First State Bank about $8 million, even after foreclosures, according to court documents. Court documents show that Terminella settled with Pinnacle Bank and the Bank of England and has deeded property back to several other local banks.
Just after Smith, the Washington County circuit judge, ruled in Metropolitan’s favor in the Grand Valley Ridge foreclosure in February 2009, Ginnaven said, bank officials offered Terminella a deal not to proceed with more litigation. He could walk away from what he still owed the bank after the foreclosure plus about $800,000 in attorney fees for the bank — just for not appealing the case.
Terminella rejected the offer and appealed to the state Supreme Court.
“I will see this through until the end,” he said. “At this point, it’s the principle.”
BANKS’ ROLE
The boom years in Northwest Arkansas were a heady time for anyone involved in real estate or banking.
“In 2004 and 2005, you could think it would go on forever,” Deck told the Democrat-Gazette in 2007 as signs of a slowdown began to emerge.
In 2005, Benton County residential sales jumped 27 percent over 2004 to $982 million, and Washington County sales were up 17 percent, to $560 million, according to the Arkansas Realtors Association.
However, a quarterly survey of real estate in Benton and Washington counties conducted by the UA center in early 2006 found that developers had overbuilt houses in the $250,000-and-up range. The survey, called the Skyline Report, was commissioned by Arvest Bank in 2004.
Terminella warned in an Arkansas Times interview that banks were loaning too much money to unqualified borrowers despite evidence that the area was being overdeveloped.
“In the last 24 months, it’s been rather entertaining to watch this unfold,” Terminella told the newspaper in December 2006. “It’s a very challenging market. I watched a lot of development that didn’t make sense at the time it was happening. Now, with the correction in the market, it makes absolutely no sense.”
Banks raced to open branch offices in Northwest Arkansas as the population growth and building boom continued. The Arkansas State Bank Department approved 32 new or relocated bank branches in the two-county region in 2004 and 2005.
Terminella and his partners obtained loans from 14 banks for projects in Benton and Washington counties, Terminella said.
Metropolitan was one of the banks expanding in Northwest Arkansas and was involved in a number of high-profile developments. These included Brandon Barber’s Legacy Building in Fayetteville, Carmen Lehman’s Village on the Creeks in Rogers and Bill Schwyhart’s Pinnacle Point, also in Rogers.
Schwyhart, a Rogers developer, sued Metropolitan after it foreclosed in December 2009 on 10 buildings in Pinnacle Point with unpaid loans of $34.4 million. His suit alleged breach of contract, interference with contract and business expectancies, and violation of the Arkansas Deceptive Trade Practices Act. Schwyhart withdrew the suit in September, but said he plans to file it in federal court instead.
Metropolitan was not the only Northwest Arkansas bank that the Office of the Comptroller of the Currency sanctioned by written agreement in 2008. Legacy National Bank of Springdale signed a written agreement with the agency on April 24, 2008.
A written agreement is the lesser of two sanctions by federal regulators. A cease-and-desist order is more serious. ANB Financial had entered into a written agreement with the comptroller in June 2007, nearly a year before being shut down.
Escalating loan delinquencies caused Metropolitan to lose $7.39 million in the first nine months of this year, the bank recently reported. Still, that’s an improvement over a loss of $54.8 million in the same period last year.
Susie Smith, the Metropolitan senior executive vice president, said the bank has seen business improve since the board signed the 2008 agreement with regulators to correct unsafe banking practices. She admits the bank remains below federal requirements for capital.
“We are not in compliance with that formal agreement, but we have made great progress and are working closely with regulators,” she said.
THE FALLOUT
Terminella said Metropolitan’s business practices caused him to lose about $300 million worth of property. Yet in many ways, he is better off than some of the region’s other big developers. He has not filed for bankruptcy and his marriage is intact.
“Last time I counted, my mother loves me, my wife loves me, and my four kids can’t wait until I get home,” he said.
He said he can count those he owes money on one hand — and all of them are lending institutions.
“I paid everybody that I possibly could, other than institutions,” Terminella said. “To this day, I do not have a checking or savings account in any lending institution in this universe.”
He lives on a 2-acre mountaintop estate on West Dinsmore Trail in Fayetteville, with views of the city and the Boston Mountains. However, he no longer owns the second home in Marion County, according to property records. The helicopter also is history, court records show.
“I liquidated my entire estate before anyone could get a judgment on me,” Terminella said.
As principal broker of Terminella & Associates, he has a staff of three sales executives, including niece Jamie Terminella. The company once was housed in the 10,000-square-foot Terminella Building on North College Avenue. Washington County bought the building in 2008 for about $4.5 million and turned it into a courthouse annex.
Terminella’s current office is tucked into the corner of a mostly vacant shopping center at 24 E. Meadow St., behind the clothing boutique By Request, which is owned by his wife, Monica. The couple, who’ve been married 18 years, own the property, but it has several liens against it, county tax records show.
Friends and family have tenaciously stuck by Terminella. Family members — including his wife, brother Frank and niece — declined to comment for this article.
His neighbors said he is a family man who chats with them on their porches and trims limbs from the public road. None wanted to be identified.
Jeff Collins, an economist and partner in Streetsmart Data Services, calls his friend Terminella a survivor. Collins declared bankruptcy in September 2009 after one of his own development projects failed.
“He’s very hard working, and I think that he is likely to be a person who finds a way to land on his feet,” Collins said. “He’s also one of the most devoted family men that I’ve ever met. Not only immediate, but extended family. That’s the impression I’ve gotten.”
Former business partner Steve Clary, a Little Rock developer with whom Terminella bought land in Rogers in 2000 for the Creekside development, said he always thought Terminella was a “good guy.” Clary and his wife declared bankruptcy earlier this year with total debt of $168.6 million.
“He worked hard, worked very hard,” Clary said. “Like most developers, you take risks. The market up there got overheated and a lot of folks got hurt.”