10 years later, developer David Syre apparently settles troubled real estate loan [The Bellingham Herald (Bellingham, Wash.)]

Nov. 25--BELLINGHAM -- When David Syre and Trillium Corp. obtained a $17.6 million loan from Old Standard Life Insurance Co. in 2002, the cash infusion was supposed to help keep Trillium afloat after the firm's ambitious Denver development project fell short of expectations.

Instead, the $17.6 million turned into a vampire loan that sucked financial life out of Syre and Trillium for 10 years. It already has cost Syre millions of dollars while forcing him to surrender control of additional millions of dollars' worth of real estate, including Galbraith Mountain and a large parcel in the Semiahmoo-Birch Point area.

On Friday, Nov. 23, it appeared that the tangled life of that 2002 loan was finally coming to an end. A court document filed in U.S. Bankruptcy Court in Seattle indicated that an ongoing legal dispute over Syre's remaining payment obligations on the loan had been settled, although terms were not disclosed.

Without that settlement, the matter would have gone before Bankruptcy Judge Timothy Dore for a bench trial that had been scheduled to begin Monday, Nov. 26.

Years before he lost the real estate that secured the unpaid millions originally loaned by the insurance company, the same loan caused a hit to Syre's reputation.

Federal investigators accused Syre of involvement in a fraud in a 2005 civil lawsuit connected to the collapse of Metropolitan Mortgage. Metropolitan, a Spokane investment conglomerate, was affiliated with Old Standard, and the U.S. Securities and Exchange Commission charged that Old Standard's loan to Trillium had been part of a scheme to mislead Metropolitan's investors about that company's profitability.

Syre settled his legal issues by paying a fine without admitting guilt.

The financial and legal morass of the past 10 years has been a long and dismal chapter in the history of a man and a company that once seemed to have a Midas touch.

In the 1980s, Syre pulled off complex legal and political maneuvers that turned a state-owned tree nursery into Bellis Fair mall, and an abandoned salmon cannery property into a golf course, hotel and swanky subdivision at Semiahmoo in Blaine.

Syre also donated real estate that became the core of the Whatcom Community College campus, where Syre Auditorium bears his name.

But after that, a disastrous Chilean timber venture and the troubled Denver project left Trillium and its founder in difficult straits that set the backdrop for the 2002 loan secured by Trillium real estate. But instead of helping Trillium improve its financial health, the loan became one more problem. The company repeatedly defaulted on repayment, according to court records.

In December 2011, the 2002 Old Standard loan was the impulse behind Syre's Chapter 11 bankruptcy filing: He sought the protection of bankruptcy laws to save his assets from seizure by Polygon Financial, the company that took over the loan after Old Standard and Metropolitan Mortgage collapsed.

When the original $17.6 million loan from Old Standard Life Insurance Co. was made to Trillium Corp. in 2002, Syre and his then-wife Kay had personally guaranteed its repayment.

Before the settlement was announced, Syre was under pressure to come up with an additional $11 million to pay off the loan.

Attorneys for Polygon argued that Syre still owed $11 million, because the collateral properties that Polygon seized through foreclosure were worth far less than the total $15.5 million in unpaid principal and interest that Polygon was entitled to collect when the foreclosures took place in 2011.

Syre's attorneys argued the opposite: They contend that the properties Polygon seized were worth far more than what Syre owed, and Polygon already had recovered far more than its $14.5 million original investment in buying the delinquent Old Standard loan in 2005.

Documents filed in Syre's bankruptcy case, and in an earlier civil suit that Polygon filed in Whatcom County Superior Court, portray a business relationship between Syre and Polygon's boss or "managing member," Werner Paulus, that evolved into a friendship.

In a statement filed in the Whatcom County court, Paulus said he and Syre had a business and personal relationship dating back to the late 1970s. Paulus also mentioned that besides developing his own condominium and office projects, he was in the business of making loans to other developers.

"At some point, Mr. Syre approached me about financing some of Mr. Syre's projects and properties," Paulus' statement said. "Mr. Syre's entities, particularly Trillium Corp., often could not obtain conventional financing because the property offered for collateral did not produce income, Trillium itself did not have a good record of timely payments, and conventional lenders viewed his projects as too risky. ... From my experience, Mr. Syre overvalued his property and overestimated the chances for success of some of his proposed projects."

In a document filed as part of the bankruptcy proceeding, Syre's attorneys accused Paulus of exploiting his relationship with Syre to obtain valuable real estate at a fraction of its true worth.

By 2005, according to Syre's court filings, Syre's liability on the Old Standard loan had ballooned to $22 million, including unpaid interest and principal. The insurance company, then in receivership, was willing to settle the debt for $14.5 million and write off the rest.

Paulus "learned of the opportunity through his personal relationship with David Syre and offered to 'help,'" a Syre legal document says. "Rather than loan Syre the money to pay off the Old Standard loan, Polygon acquired the Old Standard loan for the discounted price of $14.5 million."

The terms of the deal were far from friendly, according to Syre's account: Polygon required Trillium to pay a $1 million acquisition fee and a $500,000 consultant's fee on the deal -- sums that appear to have been added to the loan principal for a total of $16 million.

Polygon also demanded more collateral, including Trillium's 353 acres of land at Birch Point, close to the Semiahmoo Golf and Country Club. At that time, the 353 acres were appraised at $17.5 million, according to Syre's account.

Trillium also was obligated to pay the debt in full by Jan. 31, 2008.

When that didn't happen, Syre's attorneys say, Polygon asserted that the original $22 million loan balance as of 2005 was now collectable, along with interest and late charges adding up to a total debt of $33 million.

Syre contends that between 2005, when Polygon took over the loan, and early 2011, Trillium already had transferred cash and real estate worth more than $19 million to Polygon-well in excess of Polygon's original 2005 investment. But Polygon still claimed a remaining debt of more than $15 million secured by the 353 Birch Point acres and three smaller properties. In June 2011, Polygon took over all those properties via foreclosure.

As Syre saw it, the foreclosure should have driven a stake through the heart of the 10-year-old loan. The 353 acres on Birch Point alone were worth more than the $15 million that he and his company owed.

Polygon didn't see it that way. The company resold the 353 acres for just $3.7 million a few months after the foreclosure. Polygon attorneys submitted a real estate appraisal saying the property was worth no more than that in the current market, and that means Syre still owes Polygon a "deficiency judgment" of about $11 million.

Syre contended that Polygon accepted a lowball price when the 353 acres were resold, because Paulus wanted to keep Syre in debt to enable him to go after Syre's remaining assets -- including two profitable sawmills.

"Polygon had intimate knowledge of the mills because of ... Paulus's personal relationship with David Syre," Syre's attorneys contend.

In an earlier filing in state court, Paulus denied any such scheme.

"In my financing arrangements with Mr. Syre, I never wanted to acquire any of the property offered as collateral for his obligations," Paulus' statement said. "I would have much preferred if Mr. Syre had repaid the loans according to their terms, as he promised many times to do."

Reach JOHN STARK at [email protected] or call 715-2274.

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