"We aren't done yet," said James Wynstra, president of the Homestead Group of Companies, responding to the latest disclosures about the dire state of the Lynden company's financial outlook.
For the third time in the past two years, those disclosures came in a letter from Wynstra to his investors that found its way to reporters. Among other things, Wynstra's Jan. 5, 2011, letter acknowledges that no interest has been paid to investors for the past 21 months.
Homestead is believed to have about 400 investors, mostly in the Lynden area, who have helped bankroll the company's growth and diversification from homebuilding to condos, golf resorts and the Birch Bay waterslides, among other properties. Investors were attracted to the company by their faith in Wynstra and by the rate of return on investments in his firm, which was 8 percent or more.
Among other things, Wynstra is known for his lead role in development projects that turned Lynden into a Dutch-themed village, pulling in tourist dollars for local merchants.
In a brief voicemail message, Wynstra declined to discuss the situation in detail. He stressed that he continues to work to find a solution to his company's financial bind.
"There is a very serious effort being made here ... to recapitalize ourselves so we can produce the best results for those involved," Wynstra said.
During the past year, there had been some superficial signs that Homestead might be working its way through the financial storm that devastated the real estate development sector in the wake of the nationwide housing bust. In March 2010, the company completed the sale of its Homestead Farms Golf Resort. Property records in the Whatcom County Auditor's office indicate that Homestead had managed to pay off several liens filed by construction companies, as well as a $107,821 federal tax lien filed by the IRS.
Despite those positive developments, Wynstra's letter indicates that time may be running out:
? Frontier Bank, which failed in April 2010, had been Homestead's primary lender, the letter states. Union Bank, which took over Frontier's loans, has "initiated foreclosure proceedings on a few of our properties."
? Foreclosures would mean heavy losses for Homestead investors, whose money has been collateralized to some extent by deeds of trust on Homestead real estate.
? "If we give up and don't persevere, a crude estimate of losses is approximately $50 million," the letter states.
The letter also informs investors that Homestead is working with a consulting firm that specializes in turning around struggling companies, and a turnaround plan will be developed over the next 90 days.
But even the best-case scenario may mean investor losses.
"They (consultants) believe a plan can be formulated which will restore to our first and second position secured note holders substantial portions of their note balances and to our unsecured note holders, a considerable repayment of the principal of their notes," the letter states.
Homestead's real estate holdings remain promising once the real estate market regains its health, but Wynstra's letter acknowledges that could take two to three years.
Wynstra also encourages his investors to remain on board and cooperate with reorganization efforts.
"The choice is yours: To persevere and try to weather this incredible storm, with the hope of substantial recovery, or to pull the plug now with disastrous financial consequences for most note holders."
In early 2009, the Washington Department of Financial Institutions began an inquiry into Homestead's operations to determine if state securities laws have been violated.
Martin Cordell, financial legal examiner with DFI, confirmed that the inquiry is still in progress.