Tanglewood Development LLC — the company developing the mammoth mixed-use project west of Elizabeth City — recently staved off foreclosure by selling large tracts of land and partnering with a Chicago-based brokerage firm, several sources have told The Daily Advance.

The sources said Tanglewood Development encountered cash-flow problems in February when lenders sued the company, claiming it had defaulted on loans totalling $17.6 million. At the time, lenders across the country were losing money in the fallout from the sub-prime mortgage fiasco and were enforcing contracts of all types to collect debts, the sources said.

Staff Photo Collage by Justin Falls (ENLARGE)

Several acres of Tanglewood development property that border both sides of U.S. Highway 17 Bypass in Elizabeth City are seen from the highway's median, Thursday.

According to court records, the lawsuit against Tanglewood was filed Feb. 8 by Laminar Direct Capital of Houston, Texas, D.E. Shaw Real Estate Portfolios of New York City, and Jadda Secured Senior Mortgage Fund of Bloomfield Hills, Mich.

The lawsuit claimed that Laminar and Jadda organized and structured loans totaling $17.6 million to Tanglewood on Jan. 17, 2007, to refinance and consolidate existing loans, acquire property and develop mixed-use residential and commercial development.

Tanglewood was scheduled to pay back $12.5 million of the $17.6 million by Feb. 1, but didn't, the lawsuit states.

When no payment was made, a foreclosure notice was filed on Feb. 27 against Tanglewood Development LLC, Tanglewood developer Jon S. Crouse and Donna W. Crouse, seeking more than $17.6 million.

Listed as collateral when Tanglewood borrowed the money were two large tracts of land, one for 283 acres and another for 213 acres. Laminar and Jadda sought to foreclose on both tracts to satisfy the debt, court records show.

According to the documents, Jon Crouse agreed to sell 28.5 acres by March 30 to Wendell C. Franklin, Thomas M. Johnson, Stephen W. Cooper and S.L. Nusbaum Realty Co. for $3.6 million.

Then on June 2, Tanglewood sold three tracts totaling 252 acres to a Chesapeake, Va., development company called SAT-DEV LLC, which is now called Tanglewood Crossing LLC and headed by Mehul S. Shah and Scott Taylor, and to 17 South Development LLC, a company headed by Jon Crouse.

The value of the second land sale was not available. However, both sales apparently raised enough capital to satisfy Tanglewood's lenders. Four days after the 252-acre sale, a motion to dismiss the foreclosure proceeding was approved by Pasquotank County Clerk of Superior Court Lynne Pike.

Jon Crouse declined to comment for this story when contacted last week.

However, Crouse's new partners in the Tanglewood project say the development company's debts have been satisfied.

"I do not see anything outstanding. Everything appears to be paid up," said Benjie Burford, chief executive officer of Conlon & Co.

The Chicago-based brokerage firm agreed in March to become partners with Crouse in the Tanglewood development because it "wanted to be a long-term player in Elizabeth City and North Carolina," company founder and chairman C. Sean Conlon said. The company is expected to pump both money and real estate expertise into the Tanglewood project. Both Burford and Conlon are upbeat about Tanglewood's future prospects. Both are also complimentary of Crouse's efforts over the past eight years developing the 6,700-acre site west of Elizabeth City for a mixture of commercial, industrial, residential and educational uses.

"We're very excited to be in business with Jon Crouse," Burford said. "The site has phenomenal potential."

"Jon Crouse is a classic visionary," Conlon added. "(Crouse) needed support, and we (were able to bring) another area of expertise and capital. Elizabeth City has all the classic hallmarks of a wonderful opportunity."

Conlon said Tanglewood is in a better location geographically and economically than other parts of the country where the economic slump and credit crunch have halted growth. He noted that Hall Automotive plans a groundbreaking for its Honda dealership on the site Wednesday, and a number of other retailers have expressed interest in the development.

"Hall Honda has spent a ton of money on the infrastructure, and I've had pretty detailed discussions with retailers," Conlon said, saying it would be premature to name them. "I am excited by the quality of retailers" interested in the site.

Local city and county officials also remain upbeat about the Tanglewood development's future prospects.

"The city has had an opportunity to talk to numerous investors in the development," said City Manager Rich Olson, who has worked closely with Crouse as sections of Tanglewood were annexed to the city. "All seem positive and upbeat. They like the concept of what's being developed on Halstead (Boulevard Extended)."

Pasquotank County Manager Randy Keaton said Tanglewood has already contributed revenue to the county's coffers thanks to the tax on several large property transfers. He expects Tanglewood to continue adding to the county's tax base as the development grows.

"Certainly all the development on Halstead Boulevard (Extended) is going to be a big economic engine for the city and county, such as Hall Honda and Fairfield Inn," Keaton said. "We're getting a number of new businesses out there — not just ones that relocated out there. That's become the new gateway to the city."