Patterson Equity Partners LLC has contracted for the purchase of about 68 acres of land on the peninsula at Possum Kingdom Lake from Nita Brooks, Wayland A. Brooks, Georgia B. Porter, J.C. Porter Jr., Forum Et Cetera Inc. and NKC Inc.

These properties, known as part of the Constantin tracts, include 52 residential leaseholds, seven commercial leaseholds and about 45 acres of undeveloped land. The commercial leases include Willows Condominiums, Graham Savings and Loan, Mr. C’s, the previous Jackson’s café site and other commercial properties in that immediate area.

“We’ve got to do a lot of survey work,” said Mike Patterson, managing partner of Patterson PK Land Partnership. “We have to make sure the present configuration of lots meets county approval.”

The reason, he explained, is that the purchase is not part of the sale from Brazos River Authority that was spelled out in HB 3031.

“We want to make sure we are able to sell the residential lots to the lease holders,” he said. “For commercial, we don’t know what we’re going to do with them.”

The land is unencumbered by Federal Energy Regulatory Commission regulations and set backs.

“The big thing is 30 or 40 acres of open land,” Patterson added. “We’re going to do some market analysis to see what the lake needs. What does the lake need that it doesn’t have?”

The sale should be finalized this fall, he added.

For the past 20 years, Martin has owned a lake home at Possum Kingdom.  But like all the other landowners around the lake, she’s had to lease the land under her home.  This is because the Brazos River Authority always owned the land surrounding the lake and has only leased it to the homeowners.  Until now.

Last year, Patterson Equity Partners, led by Mike Patterson, offered the BRA a $52 million bid to buy out all the leases around the lake.  The BRA, eager for an infusion of money and even more eager to get out of the real estate business, accepted the offer.  About a year of negotiation concluded this past week and PEP officially closed the sale.  Now, homeowners finally get the opportunity to purchase their land.  The first was Ona Martin.

“I feel great and honored and to be the first person to own my land around Possum Kingdom,” Mrs. Martin said, wearing a brown business suit and smiling widely as she signed the paperwork at 12:15 inside the Gault and Gault Law Offices in Mineral Wells. “Thank you to Mike for making this happen.”

Mike Patterson took a moment to reflect on the meaning of the moment. “This is the American dream,” he said.  “To be able to move from leasing land, which is an expense, to owning land, which is an investment, is a great deal for all the homeowners at Possum Kingdom.  I’m proud that Patterson Equity Partners has been able to make Mrs. Martin’s dream come true.  And she’s just the beginning.  Many more will also own their land.  And we believe the model we have created here at Possum Kingdom can be created elsewhere.  Anywhere a government entity has excess property that it owns and wants to get out of the real estate business, we can help.”

Joining Mrs. Martin at the historic signing was: Bob Colemen, president of First National Bank Graham, one of the preferred lenders for PEP; Kenny Russell, general manager of Link Field Services; Neal Smith, lead draftsman of Possum Kingdom Project Link Field Services; George Gault, managing partner of Gault & Gault; and Jane Privitt, representing the Elliot and Waldron Abstract Company.

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 First Sale of Its Kind-Sale Gives BRA Influx of Cash and Puts Leaseholders in Charge

October 22, 2010 ARLINGTON, TEXAS— Today the Patterson Possum Kingdom Lake Partnership (PPKLP) and the Brazos Rivery Authority (BRA) made history in closing the sale of all the lakefront property leases at Possum Kingdom Lake from the BRA and transferring them to the PPKLP. This marks the first time a government-owned lake has sold the lake property leases to private investors.

“This is a great win for everyone—the BRA, our investors, the leaseholders and the general public,” said Mike Patterson, Managing Partner of PPKLP.  “Now that the sale has closed, everyone wins.  The government wins by getting much needed cash, the leaseholders win by getting the chance to buy the lease and the general public wins because this is a significant transaction that can only help our struggling economy.”

Patterson thanks everyone involved in the process and noted that it was a team effort.  “You don’t pull off a project of this magnitude by yourself.  This could not have been accomplished without a great team: the BRA (both in Waco and Possum Kingdom), the surveyors, title companies and leaseholders of Possum Kingdom.  We should all be very proud of the end product.  We did the right thing, and we did it the right way.”

Last year, the BRA accepted a $52 million bid from PPKLP. Under the terms of the sale, 1,537 residential leaseholders and 19 business owners will either be allowed to continue to lease the land or they have the option to buy the land based on the land’s 2008 assessed value.

Patterson added that he believes other government entities should look at privatizing their real estate as well. “If this can be done at Possum Kingdom, it can be done anywhere,” he added. “Other government entities should look at what the BRA has done and think about selling their excess properties, too.”

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With a closing date in sight, investors leading the Possum Kingdom land purchase are happy with their results – and are ready to expand their services statewide.

Patterson PK Land Partnership, formed by Arlington businessman Mike Patterson, will make history on Sept. 15 with the purchase of more than 1,500 Possum Kingdom lakefront property leases to be transferred from the Brazos River Authority. And Patterson said the experience has been great – great enough to build on.

Last year, the Brazos River Authority accepted a $52 million bid from Patterson PK Land Partnership. Under the terms of the sale, 1,516 residential leaseholders and 19 business owners will be allowed to buy the land their property sits on or re-lease it. The cost will be based on the land’s 2008 assessed value. It is the first time in Texas history that a government controlled lake has sold leaseholds in bulk to a private investor.

“If you look around, cities are on furloughs and cutting staff and fire and police, but then they hold real estate like this – something they don’t necessarily need,” said Patterson, managing partner of Patterson PK Land Partnership. “This has been a great experience and we are ready to close this deal and do more.”

Possum Kingdom Lake, which covers 17,700 acres mostly in Palo Pinto County, was created in the early 1940s when the Brazos River Authority constructed the Morris Sheppard Dam, which was the authority’s first major project to manage flooding in the Brazos River Basin.

The authority, established in 1929, began selling leases after 1941, first for camping and fishing sites, then for small lake houses, and eventually for million-dollar mansions along the 310 miles of shoreline.

Patterson, who has owned a home on Possum Kingdom Lake for nearly 14 years, said the Brazos River Authority (BRA) decided to get out of the leasehold business a few years ago when legislation nearly passed that would have forced the entity to sell its leasehold land.

With the passing of House Bill 3031, which allowed BRA to sell its land, the entity put out a Request for Bids in 2009 and received two bids – one from a Dallas group for $12 million and one from Patterson’s group for $52 million. In July 2009, the Brazos River Authority signed a contract with Patterson PK Land Partnership by unanimous vote to sell the leaseholds.

Patterson signed on 42 investors for the deal, half of which are Possum Kingdom Lake homeowners, who put up $15 million in equity to add to the $40 million in debt.

“When they opened the bids, I think they were excited to see we had a serious bid and we were ready to see it through,” Patterson said. “And I think they liked some of the aspects of our bid.”

Those aspects included several lake lessees as investors and financing from not one, but 11 area banks.

“It was a team effort,” Patterson said. “… I knew the big loans were being highly scrutinized, but if you bust that up, you’re more likely to get it done. It’s the way of the world right now. They would rather get a stick in their eye than lend Mike Patterson $40 million dollars, but the way we structured it, their risk is $5 million to $2 million and that doesn’t provoke the regulators as much.”

In return for supporting the project, Patterson will offer a 5 percent discount off lessees purchase prices if they use one of the 11 lenders participating in the loan.

“There’s about 1,000 transactions going to these lending institutions and these are lots under someone’s house, so it’s not high-risk,” Patterson said. “I’ve been involved in a lot of situations where I represented the buyer or the seller and somebody walks away the winner and the loser, but in this situation, the BRA is happy with $52 million and getting a large part of the way out of the land management business and the homeowners are getting to buy at 85 to 90 percent of the 2008 values.”

Pricing structure

Once the deal is closed, Possum Kingdom Lake homeowners will have a one-year option period to buy their lot from Patterson’s group for 90 percent of its 2008 appraised value, after which the prices will adjust to current values – and Patterson said 2010 values for the land are double the 2008 values.

If they close within 30 to 60 days of Patterson’s closing and use a preferred lender – one of the 11 lenders that financed the PK land deal – then Patterson will take 5 percent off the total sales price.

Patterson said he also will seller finance at the same 2008 value for 10 percent down, at a 6 percent, 30-year amortization and he will offer some 99-year leases, or 20-year leases for leaseholders 65 years or older.

To date, Jarod Cox, director of Patterson PK Land Partnership, said about 72 percent of the lake already is under contract, awaiting the group’s closing date.

“Part of that is the low interest rates right now,” Cox said. “A lot of these people have 8 percent leasehold financing, but interest rates are lower now and they see it as a good opportunity.”

Looking to more lakes

Patterson PK Land Partnership is a subsidiary of Patterson Equity Partners, an entity Patterson said he plans to market as one that assists government entities in the divestiture of leasehold property.

Patterson said he feels many cities and counties throughout the state have found themselves in the land management business – and would like the option of getting out.

“It’s nice to be able to offer them a solution,” Patterson said. “And we’re helping the government get out of things they’re not good at. I think a lot of cities and counties and states have somehow ended up in things that privatization would work better than them trying to do it themselves.

Patterson said he didn’t begin the Possum Kingdom negotiations with the intension to duplicate the deal with other government entities, but the more he got into it, the more of an opportunity he saw.

“When we really stopped and looked at it, and saw it was working and the more we read the newspapers and listened to different stories, there are just so many challenges out there cities and counties are facing and I am a big believer in letting government do what it does best,” he said. “So yes, I think we’re going to expand this and explore other lakes in Texas.”

Patterson said PEP has developed a business model in which it purchases land from the government and then sells it back to the leaseholders. Possum Kingdom has about twice as many leaseholds as any other in Texas, Patterson said, with typical leaseholds boasting 200 to 300 lessees.

Cox said if the group can handle Possum Kingdom, smaller deals should present no problem.

“A lot of these cities, municipalities, got into it and got in there with leases for fishing cabins, and then they wake up 40 years later and they have multimillion dollar homes and they’re wondering how they became a residential real estate firm,” Cox said. “It’s a situation with a lot of potential problems.”

Patterson said he hopes to begin promoting PEP throughout the state in the coming months – after the Possum Kingdom Lake deal closes.

“No. 1 is Possum Kingdom,” he said. “We don’t want to take our eye off the ball with that. Along the way, we’ll try to tell our story and maybe there will be a lessee or a homeowner group on a lake that hears about it and wants to talk to us. One person buying one lot on a lake is not a compelling reason for a city to sell its lots, but if the city can get out of all of the lots at once, now that’s something they would be interested in. And for investors, if you look at the money markets, a one-year CD would get you 1 percent, so you’re not getting much for your money at the banks and I think people know that and we can do this many, many times and not have to go very far.”

June 1, 2010 ARLINGTON, TEXAS—Today the Patterson PK Land Partnership made history in announcing that the Possum Kingdom sale will close and the lakefront property leases will transfer from the Brazos River Authority to the PPKLP on September 15.  This will mark the successful conclusion of a year-long process and marks the first time a government-owned lake has sold the lake property leases to private investors.

“One year ago we promised the people of Possum Kingdom Lake that we would engage in the fairest and most effective process to help transition the lake front properties from government ownership to private owners,” said Mike Patterson, Managing Partner of Patterson PK Land Partnership.  “Now that the sale is approaching closing, we will continue to engage the homeowners and give them options ranging from buying their land to continuing to lease it.  We will be good stewards of this project.”

Last year, the Brazos River Authority accepted a $52 million bid from Patterson PK Land Partnership. Under the terms of the sale, 1,516 residential leaseholders and 19 business owners will be allowed to buy the land their property sits on or re-lease it. The cost will be based on the land’s 2008 assessed value.

And Patterson added that he believes that other government entities should look at privatizing their real estate as well. “If this can be done at Possum Kingdom, it can be done anywhere,” he added. “This is a win-win for everyone—the leaseholders, the taxpayers and the local economy.”

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Patterson PK Land Partnership is a subsidiary of Patterson Equity Partners (PEP).  PEP assists government entities in the divestiture of leasehold property. Created in 2009, PEP has developed a business model where it purchases land from the government and then sells it back to the leaseholders. Possum Kingdom is the first successful project; PEP is currently looking at other divestiture opportunities.

For more information:

Jarod Cox
Patterson Equity Partners
817.784.2065
jarod@pattersonequitypartners.com