Washington Business Journal

Lawsuits, Liens Linger for the Ed Peete Co.

By Melissa Castro Staff Reporter

Friday, April 18, 2008

Looking around Arlington, you can't help but notice that some of the Ed Peete Co.'s condominium projects have turned out beautifully—just not necessarily for Ed Peete.

In recent months, the high-end residential developer has been papered over with mechanic's liens on the Zoso, a 114-unit building at 1025 N. Fillmore St., including 13 since the beginning of this month.  The Euro-flaired condo development was converted to apartments last spring and will be sold in the coming days to an institutional investor.

Another project, the Joule on Wilson Boulevard, is embroiled in a lawsuit filed by the company that bought it last year and converted it into an extended-stay facility.

And still another, the Bromptons at Cherrydale, sits in the dirt at the  corner of North Quincy Street and Lee Highway, the wind whipping its exposed and deteriorating insulation. Because of engineering flaws, the county issued a stop-work order on the building in 2006.

Recent lawsuits and liens involving the company and Ed Peete, its 46-year-old founder, reveal an operation struggling with constricting cash flow. A developer in the Washington region since 1987, Peete jumped into the condo market in 2002 and started five projects–the Zoso, Bromptons at Cherrydale, the Bromptons II at Monument Place, the Joule and Io Piazza in Shirlington.

"Yes, there have been liens filed, but mainly that has to do with the general contractor," Peete said.  With respect to some projects' engineering troubles, "the engineer made some miscalculations, and it required a lot of work to fix it, but it all got corrected, people got paid, and you move on," he said.

The first signs of trouble percolated in March 2005 when Peete's former partner, Kevin Smith of Smith Development Inc., sued Peete in state and federal court for, among other things, improperly using Smith's  "Bromptons" name in developments that were not joint projects.

Later that summer, beams and walls at the nearly completed Bromptons at Cherrydale started showing signs of stress and bending, according to documents filed in lawsuits between Peete's company and its engineering companies.

Meyer Consulting Engineers Corp., the Rockville company hired to design the Cherrydale project, had been working on two other Peete projects, the Io Piazza and the Joule, raising possible red flags for those buildings.  A close inspection of the Joule revealed signs of stress on a column, but the Io Piazza showed no outward signs, Peete said.

After settling lawsuits against its engineers this past January and March, Peete has gone back and forth in deciding whether to fix the Bromptons at Cherrydale or topple it and start over.  In the end, the company will probably just sell it, Peete said.

Other problems surfaced when Arlington's condo market took a tumble and some of Peete's buyers demanded their deposits back.  Some purchasers claim that Peete's company bullied purchasers who couldn't close into signing releases forfeiting their deposits so he could sell the projects to investors looking to convert them to apartments.

In August 2006, the company's agents "started sending out e-mails to purchasers saying 'we're ready to settle in two weeks,' knowing they couldn't settle—they didn't even have a certificate of occupancy," said Claudia Hines, an attorney who was contacted by at least a dozen Joule purchasers exploring their legal rights.

Although no suits were filed, Peete said there was no agreement to sell the projects at the time most of the contract purchasers forfeited their deposits.

In 2007, he sold the Io Piazza to Boston-based General Investment & Development Cos. for $99.5 million, according to land records, and the

Joule to a subsidiary of Korman Communities Inc. for $43 million.

Korman planned to convert the building into AKA, an extended-stay corporate rental building.  But Korman sued the Peete entity that sold the Joule, saying Peete promised that the holding company would pay $1.6 million to Arlington County to satisfy its affordable housing obligation. With his holding company's operating account dipping below $1,000 at various times in 2007, Peete was unable to make that payment, the suit said.

Korman's subsidiary is seeking more than $43 million—the entire purchase price—in damages.  It accuses Peete of "fraud" to induce the company "to close on the property for more than it was worth and to avoid having to  fund a shortfall at closing" for liens on the property.  Peete denied the sales contract required him to cover the Arlington payment.

In the meantime, there's the Zoso.  With its general contractor, Signet

Realty Construction, all but walking off the job after placing about $5 million worth of liens on the property (and suing Peete on the Cherrydale project), Peete says he is racing to complete the Zoso and sell it to another apartment investor within the next 30 days.