Dixie Development Sheds $45M in Assets

Ben Israel, CEO of Dixie Development Inc., has yet to pay for last year’s company Christmas party.

As early as Dec. 8, the date a $7,133 payment was due to The Event Group of Fayetteville for yuletide food and beverages, the company was facing a dire road with some of its multi-million dollar developments.

Smaller debts got pushed to the bottom of the list and The Event Group was only the first.

From Jan. 1 through Aug. 31, various limited liability companies and partnerships under the Dixie umbrella have faced almost 50 lawsuits, liens or foreclosures valued at a combined $6 million, not including claims of damages. Most of the filings are similar to the catering bill: seeking payment for services rendered and materials used.

On Aug. 29, Jonesboro-based Liberty Bank of Arkansas hit the company with its third foreclosure filing this year for the Creekside Center project on Mall Avenue in Fayetteville. Multiple partners are involved, but Dixie’s share of the property is valued at $1.72 million, according to the foreclosure documents.

In the last year, Israel has dealt with embezzlement of about $100,000 by his daughter-in-law/CFO, an area-wide real estate slowdown, a couple of land deals gone bad, the death of his brother and now the possibility of filing bankruptcy.

Israel said he wants to pay the invoices. He hopes the creditors the company owes will be patient as Dixie undergoes a major reorganization and divestiture effort. 

 “We are trying to eliminate as much non-income producing debt as possible, and trying to solidify everything else that’s out there and trying to collect what’s due to us,” he said.

Israel and his lawyer, Derrick Davidson of Fayetteville, said the company has reduced its debt by $45 million in the 90 days prior to Sept. 1 and they expect to eliminate another $29 million worth of properties by mid-September and are hopeful that number will be $39 million by the end of September.

As of Sept. 4, the company, including all its partners, had a collective debt of $127.9 million. About 51 percent, or $66.2 million, of that was Israel’s, the two said. Israel said he has sold off multiple properties and placed some under partners’ management.

Dixie Development Inc. reported 2006 revenue of $45.7 million, up 17.2 percent from $39 million in 2005.

As of June 1, Dixie operated more than 405,000 SF of commercial space in Northwest Arkansas and had a 57 percent occupancy rate.

“What we’re trying to accomplish is a delicate balance of working with the creditors … to where we can recover and rebuild,” said Davidson.

But if some the creditors become too anxious, it could push the company to file Chapter 11 bankruptcy, he said.

“Hopefully it won’t come to that,” he said. But it’s “a definite possibility.” 

Potential Fallout

“If filing for divorce is like a thunderstorm, then filing for bankruptcy is like a monsoon,” said one Fayetteville lawyer who declined to comment about Dixie due to possible conflicts of interests.

In fact, several Northwest Arkansas and Little Rock lawyers were reluctant to discuss potential fallout of a major bankruptcy by Dixie, citing conflicts or similar issues with other clients. 

Tulsa bankruptcy lawyer John Dale of GableGotwals Law Firm, said that for a company like Dixie, filing for bankruptcy is a complicated matter and if Israel chooses that route, all of his assets, liabilities, partners, LLCs, secured creditors and banks will have to be broken down and assessed on a case-by-case basis.

New changes in federal bankruptcy law, Dale said, will also make repayment of the debt a higher priority.

Some Dixie investors said they want to help Israel through the tough times.

“I don’t want to see him suffer more than he has to,” said Tom Muccio, an investor in Dixie’s Fayetteville properties Commerce Park II and Nelson’s Crossing. “That’s why I am working through this thing issue by issue. We are trying to work together in the best way we can. My view is, a friend is for a time of trouble.”

Muccio, also a principal in BioBased Systems of Rogers, said he now spends nearly four hours a day dealing with the financial troubles that have resulted from his investments in Dixie properties.

Another investor who declined to be identified said he had a more difficult time working with Israel to resolve the problems and has had to go to creditors and banks himself to find solutions to repay the debt.

Several members of the banking community said they field calls from Israel’s business partners on a daily basis.

Some partners said Israel would return their phone calls but that they had to initiate all meetings.

Israel said he works with creditors almost daily to establish a plan and help ease fears but he is not totally to blame for the lack of funding.

“The LLCs have to raise capital to pay Dixie Construction and if Dixie Construction doesn’t get paid it can’t pay the sub-contractors,” Davidson said. “Dixie Construction hasn’t been paid by the LLC and yet it is getting the brunt of the attacks because the sub-contractors sue the construction company and then they attach the property with a lien.”

Of the 31 liens filed against the entities, only nine include Dixie Construction Co. as the defendant and seven include specific properties. 

Israel said he is not yet ready to begin liquidating all his assets but if investors don’t help pay their part of the loans, some of the banks will continue to foreclose.

“We are not in panic mode and we’re not interested in selling properties at heavily discounted prices,” Israel said. “If [the properties] get foreclosed on because some of the investors won’t put their money in – we’re not going to be their banker – they may get foreclosed on and sold for less than their value and if they do then obviously each investor will have to make up their share of the investment.”

20/20 Hindsight

Israel is involved in 63 different projects in four states and has signed his name to more than 65 different limited liability companies, according to the Arkansas Secretary of State office.

 “We stretched ourselves out, just at the wrong time,” Israel said. “Late 2006 was when we truly knew that things had to get better and we needed to downsize. We had several projects on the board to build locally and none of them got done.

“In late ’06 we were supposed to close a property that we would make almost $2 million on, in early ’07 we were supposed to close on a second property that we would make about a $1 million on – both of those things fell through and at that point we knew that we had to make dramatic changes because we were contingent upon both of those moving forward like we wanted them to and we were counting on both of those helping us in our project over at Broken Arrow (Okla.).

“When you lose that kind of cash in a down market it really turns to the worse,” Israel said.

On Sept. 19, 2006, before the land deals fell through, Israel’s daughter-in-law and CFO Emily Israel was arrested for embezzling more than $100,000.

And though Israel doesn’t place all the blame on shoddy bookkeeping, he said it has caused significant problems for the company that carry over to this day.

 “She wrapped up an onion pretty tight,” Israel said. “We were making decisions on cash flow analysis and stuff that was made up.”

The deception lasted from November 2005 to about July 2006 and during that time the company was performing groundwork in three of its biggest projects – Nelson’s Crossing, Commerce Park II and Creekside as well as houses that were built in Bentonville.

On January 22 the Internal Revenue Service filed a $302,425 lien against Israel for unpaid payroll taxes. Israel has said he is making monthly payments to the IRS, which he said waived the penalties and interest because of Emily Israel’s criminal activity.

On July 9, the Arkansas workforce division filed a $30,493 lien against Israel for past due unemployment taxes.

Israel’s first of three foreclosure proceedings was filed by The Bank of Fayetteville on June 15 in Benton County Circuit Court. And on Aug. 27, Southern Building Services of Fort Smith began the foreclosure process against Israel and his Nelson’s Crossing development.

In August Israel and Muccio decided to hire Flake & Kelley Commercial to manage and recruit tenants to both Commerce Park II and Nelson’s Crossing.

“They had a plan and they brought that plan to Tom Muccio and myself, who own Nelson’s Crossing, and said they think they can help us get the space filled,” Israel said. “They have a 30-day window of termination if they don’t do anything. It’s not a long-term contract. I have no problem with them managing it.”

The company had 130 employees in 2004. Now there are 10. The skeleton crew has moved from Commerce Park II into the top floor of the old movie theater on Rolling Hills Drive in Fayetteville.

Marla Webb, longtime president of Dixie Development, still “consults” with the company, but has left the day-to-day operations. At the end of July, Whitley Dunn, Dixie Real Estate’s principal broker made the decision to part with the company.

In May, Derrick Davidson left the Gill Elrod Ragon Owen & Sherman satellite office in Bentonville and began his own private practice in Fayetteville. In addition to other clients, Davidson now provides counsel to Israel and the Dixie companies.

The broker’s license has been transferred to Davidson, according to the Arkansas Real Estate Commission.

In recent months Israel has divested the company of its multiple subsidiaries and partnerships with other firms that made Dixie vertically integrated, including Dixie Construction, Dixie Excavation, Dixie Landscaping, Dixie Technology Co., Dixie Cattle Co., Dixie Residential, ARMac Engineering PLLC, Engineering Elements LLC and Legacy Mortgage. 

The company has also sold one of its BP convenience stores and will soon sell the other, Israel said.

He also sold partial ownership of Heritage Land Title of Arkansas in Fayetteville on August 31 to Jacque Carruth, founder and president of the company.

Despite seeing no slowdown of liens and foreclosure warnings, Israel and many of his investors said they do see a light at the end of the tunnel.

“My problems are self-induced and I just have to take them on and whip them,” Israel said. “We’d just like to have some solid footing under us. Right now it’s kind of mushy. We haven’t seen the solid footing yet but we seem to be working towards it.”

(Assistant Editor Andrew Jensen contributed to this report.)