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Crosscut   (www.crosscut.com)   October 26, 2009

Horizon Bank and the fate of Fairhaven Highlands

by Bob Simmons

Preservationists worry that the character of Bellingham's historic neighborhood rides on the FDIC's willingness to enforce its own order restricting a controversial development.

The City of Bellingham may approve a huge hillside subdivision at the south edge of town, but the Federal Deposit Insurance Corporation will decide whether or not it gets built. Maybe that's not the way the FDIC would like it phrased, but that's the way it comes off in a recent letter from the agency's legal counsel. It adds a strange twist to a Bellingham development battle that was already strange enough.

Critics claim the development would change the character of Bellingham like nothing has since Henry Roeder and Russell Peabody paddled up from Portland in 1852 and started cutting trees. Almost 800 dwellings would occupy what is now a soggy, forested hillside connected to the rest of the city by a two-lane road and a narrow, 77-year old bridge. Current plans say 181 single-family homes and 558 apartment and condominium units would rise above the ridge, which itself rises above everything else in the historic district of Fairhaven.

Locally owned Horizon Bank would finance the project through its subsidiary, Westward Financial Services, in partnership with local developer David Edelstein. But viewed from a certain angle, it looks as though the FDIC, whose job is to prevent bankers from venturing into wild financial territory and to protect our deposits when the bankers go there anyway, will control the future of Bellingham's scenic backdrop. Not to mention the destiny of old trees, wetlands, birds, and small four-footed critters.

A classic neighbor-vs.-developer battle has grown around the wild 85 acres the developers call Fairhaven Highlands and that Bellinghamsters know, affectionately, as Hundred Acre Wood. The opponents, organized as Citizens for Responsible Development, recruited professional biologists, foresters, and geologists, and hired Seattle land-use attorney David Bricklin to fight the project on legal and environmental grounds.

They're also targeting Horizon Bank for its role in financing the proposal. Responsible Development published an "open letter" from 850 citizens urging Horizon to end its involvement. One family-owned business announced plans to cancel more than $3 million worth of borrowing and deposits.

Horizon Bank officials did not return repeated calls requesting comment on the Fairhaven Highlands proposal and the public reaction. But it's clear that the customer criticism and retribution come at a tough time for Horizon. It's No. 40 out of more than 100 "undercapitalized" banks on a list generated by the FDIC and made public on the financial news website TheStreet.com. Last March the FDIC imposed severe restrictions on Horizon, telling it to raise new capital, cut back its land development lending, and get its board of directors more engaged in the banking business.

As early as 1994, the FDIC issued a "cease and desist" order, telling Horizon Bank to stay away from multifamily housing development. The federal regulators apparently find apartment and condo speculation to be something you don't want to be deeply into when it looks like you might run short of money.

The language of the order is straightforward. It allows Horizon to continue bankrolling residential development only on the condition "that activities be limited to the development of real estate intended for single-family residential use" (emphasis added).

But in the upper left-hand corner by the Bay, the federal directive didn't change a thing. The city of Bellingham accepted the developer's Fairhaven Highlands draft environmental impact statement, and the approval process is underway. Sure enough, the draft EIS describes a development that's about four-to-one multifamily.

Opponents tossed the FDIC order into the public debate on Tuesday, at a packed hearing on the environmental consequences of Fairhaven Highlands. Attorney Mike Botwin, an outspoken critic of the development, charged that the city of Bellingham is in danger of "aiding and abetting" Horizon Bank in disobeying a federal order. Botwin says the environmental impact statement, even the Tuesday hearing itself, amounts to helping the bank flout the orders of a federal agency.

If this federal agency feels flouted, however, it's keeping its feelings to itself. FDIC counsel James Miller says in a July 15 letter (PDF) to an opponent of the project, Dr. Robert Gibb of Bellingham, that the order is still in effect, and that the bank "has not been found to have violated any of the four conditions of the order to the present time." Not even FDIC's "condition No. 2," the one that says the bank can't invest in the kind of housing the bank plans proposes at Fairhaven Highlands.

However, Miller wrote, "The FDIC will continue to closely monitor the progress of the proposal ... to ensure that the units that may be ultimately approved by the city of Bellingham for construction on the site are, in fact, intended for single-family residential use and that the bank remains in compliance with condition No. 2" (emphasis added).

This conjures up the shadow of the FDIC reaching into Bellingham's Department of Planning, tapping Director Tim Stewart on the shoulder, frowning, clearing its throat, shaking its head. Not likely. Miller was not available to explain his letter, but FDIC spokeswoman Lujuan Williams-Dickerson told Crosscut, "We could never get involved in telling a local government what it can or cannot approve. Our only authority is with the bank. If the bank is in noncompliance with our order, then we can prevent the bank from going ahead."

Williams-Dickerson would not say what noncompliance means, or just what FDIC would do about it, or when the order might seem to be violated. Does that happen when Horizon applies for its building permits? When it begins clearing trees and grading the hillside? "I can't comment on that," she said. "But we won't let a bank violate an FDIC order."

Barring that undefined violation, the Fairhaven Highlands development survives, its chances of approval advance, and Bellingham's civic blood pressure continues to rise.