Condominium Development Disaster in San Jose

Owners of Northpoint Development Declare Bankruptcy

Nov 3, 2009

The Erickson family of Los Gatos, owners of Grandpoint Community Builders of San Jose, California, are declaring bankruptcy and reneging on huge debts to private lenders.

Gilmore Erickson, Chairman of the Board, and his son Alex Erickson, CEO of Grandpoint Community Builders, Inc., are shelving plans to build two luxury condominium complexes in downtown San Jose, California. In 2007, the Ericksons embarked upon an ambitious endeavor to build the structures, though their small family firm had no experience building high-rise condominiums. They began operating under a new name, Northpoint Development, to manage the projects.

Delmas Towers, LLC, a luxury Condominium Project In San Jose, California

Delmas Tower is a 72-unit , 8-10 story mid-rise slated to be built within the block of W. San Carlos Street, Delmas Avenue and Auzerais Avenue. The land is comprised of several parcels, including two with single family homes, which were expected to be joined together and rezoned by the City of San Jose. A second phase for 85 more units was planned for the area along Auzerais Avenue, which intersects Delmas. The soil was, and still is, contaminated from a commercial enterprise that Northpoint never completely cleaned.

Gilmore and Alex Erickson obtained initial funding for the design phases of Delmas Towers and Fifth Street Tower from private lenders. They enlisted National Realty Investment Club, Inc. of Pleasanton, California, a real estate brokerage, to hold seminars in California and Nevada to offer the lending opportunity to private parties. Northpoint Development raised $2,600,000 from 24 lenders and paid NRI a commission on each loan.

Loans for a minimum of $100,000 were solicited that would yield a high rate of 50% interest during a term of one year, which would then be paid off by a construction loan. Gilmore and Dresden Erickson added a guarantee clause to each loan, backed by the Erickson Family Trust which had assets equaling $38,000,000. Permits, architectural plans and construction financing for Delmas Towers should have been completed by January 2008 and all private lenders investing in the projects paid back soon afterward.

Delmas Towers, LLC Unravels

Since 2007, things have not gone well for Delmas Towers, LLC, and it declared Chapter 11 bankruptcy on September 29, 2009. Gilmore Erickson and his wife Dresden also declared Chapter 13 bankruptcy in April 2009. Among others, they list Ujwal Bafna, owner of one of the parcels on Delmas Avenue, as a creditor for $1,000,000.

The title policy for Delmas Towers includes loans for $250,000 to Ujwal Bafna, and another loan for $320,000 to Digby Homer. Another loan on the land was secured for $450,000 with Sterling Pacific Lending, Inc. Sterling Pacific was later listed as a creditor for a $4,500,000 personal loan in Gilmore Erickson's bankruptcy. Records as to where all the borrowed money was spent since 2007 are being investigated.

The debt for Delmas Towers that Northpoint incurred affecting the widest group of people was a collection of loans to 24 private lenders totaling $2,600,000. The Erickson's declared Chapter 13 bankruptcy in April 2009, initially omitting the private lenders they had found through NREI Club as creditors. They later converted to a Chapter 7 bankruptcy and listed the private lenders, with liabilities totaling $30,000,000.

Fifth Street Tower, LLC, a Luxury Condominium Complex in San Jose, California

Fifth Street Tower is a 384-unit luxury high-rise condominium complex that Northpoint Development planned for a location across the street from San Jose's City Hall. Plans for Fifth Street Tower included twenty-two floors built above two levels of underground parking, 9,000 square feet of retail space, and town homes along 6th Street.

Northpoint used NREI Club again to solicit lenders for $4,400,000 to fund the approval process of Fifth Street Tower as late as May 2008. Completion of the entitlements was expected to be no later than September 2009, and private lenders paid off soon afterward.

The generous terms Grandpoint Community Builders or Northpoint Development offered should have been a red flag to potential lenders, but individuals still signed on the dotted lines. The lenders relied on a guarantee clause tacked to each loan, backed by the Gilmore and Dresden Erickson Family Trust with assets worth $38,000,000.

In their 2009 bankruptcy, the Ericksons claimed the value of their Trust had declined to zero. "The credit collapse is the reason," said Alex Erickson. However, the Erickson's had met with Palladium Capital in Palo Alto earlier in 2009 to restructure assets. Also, according to Dexter Eng, a private lender to Northpoint, Alex Erickson was in Texas early in 2009 doing refinancings. Part of the assets in the Erickson Trust were located in Texas.

The copyright of the article Condominium Development Disaster in San Jose in Law, Crime & Justice is owned by Dianne Smith. Permission to republish Condominium Development Disaster in San Jose in print or online must be granted by the author in writing.

Nov 5, 2009 9:50 AM

Guest :

Truth are in the numbers, and it hurts just hearing about it.

There are 80 or more individuals, couples and retirees that have lost out on their investments, some using their retirement money ranging from $30,000 to as much as $350,000 (two cases at amount). Most creditors that are at risk of losing $100,000 thanks to this bankruptcy filing.

There is a case where an out-of-state retiree who could not pursue legal representation to seek discharge complaints against this bankruptcy because the retiree cannot risk any more money after putting all retirement funds into this and was hit by tragic medical events within the family.