Down from the Pinnacle

 Bill Schwyhart with Pinnacle Investments.
Bill Schwyhart with Pinnacle Investments.

Bill Schwyhart and Johnelle Hunt live three doors down the street from each other in Rogers’ gated Pinnacle Country Club neighborhood.

The former business partners go to the same church on Sundays and speak when they run into each other having lunch at Neal’s Cafe in Springdale.

But they’re not cordial in the court room. The two, who own most of Northwest Arkansas’ premier shopping and business section, are snarled in legal disputes involving millions of dollars.

Born from a couple of pickup truck deals between Schwyhart and J.B Hunt, the trucking magnate, the partnership eventually grew to include development of much of the Pinnacle Hills region in Rogers. But Schwyhart said everything changed after Hunt died in 2006 and his wife, Johnelle Hunt, took over his business operations, which included real estate and a charter jet service.

The problem, said Johnelle Hunt, is that Schwyhart didn’t refinance debt after they split as business partners in 2007, then he defaulted on the loans. That has potentially left Johnelle Hunt and Tim Graham, another business partner, on the hook for about $42 million in loans that they had guaranteed before the split — $30 million on Pinnacle Air LLC and $12 million on Pinnacle Point, an office park in west Rogers.

Schwyhart said he had only 16.5 percent ownership in Pinnacle Air LLC, and was in no position to refinance the charter company’s debt. That was the responsibility of majority owner John Calamos of Chicago, he said. But Johnelle Hunt, in a lawsuit over the issue, notes that Schwyhart was the “managing member” of Pinnacle Air and agreed to cover any losses the other Pinnacle Air partners incurred.

Schwyhart is majority owner of 11 buildings in the Pinnacle Point office park. Metropolitan National Bank of Little Rock has foreclosed on 10 of those buildings, claiming Schwyhart defaulted on his loan.

On Tuesday, Benton County Circuit Judge Douglas Schrantz ordered Pinnacle Point Properties LLC, which is managed and primarily owned by Schwyhart, to pay $38.9 million to the bank. The amount includes $34.4 million in principal, plus interest fees and property taxes paid by the bank.

If it’s not paid by Friday, the property will be sold at auction on the front steps of the Benton County Courthouse, according to the judgment. The auction is scheduled for 9:15 a.m. on Sept. 28 and will be advertised for 10 days before it is held.

The judge also ruled that Schwyhart’s lease in the former Market at Pinnacle Point building is “fraudulent” and terminated the contract. The lease, an agreement between two companies managed by Schwyhart, called for no cash rent to be paid for four years while Schwyhart paid for renovation of the building at 5413 Pinnacle Point Drive in Rogers.

The value of the seven properties with Metropolitan mortgages, according to the bank and court filings, is $28.1 million.

“All I know is the bank had it on their books at $50 million in December,” Schwyhart said. “When I bought out the Hunt interest, I paid them $58 million-plus for the property.”

In December, Metropolitan sued to foreclose on the property. And Schwyhart sued the bank alleging breach of contract, interference with contract and business expectancies, and violation of the Arkansas Deceptive Trade Practices Act. Schwyhart withdrew his suit on Sept. 7 but said he plans to file it in federal court instead.

Schwyhart also claims Metropolitan is “pocketing” rent money from the properties at Pinnacle Point. Testimony in the trial indicated the properties bring in about $320,000 a month in rents and have about $130,000 a month in expenses.

“Mr. Schwyhart says the bank pocketed money, but in reality all the money from the rents went to pay the taxes that Mr. Schwyhart failed to pay,” said Jess Askew, an attorney for Metropolitan. “Mr. Schwyhart says he wants his day in court, but the fact of the matter is he failed to pursue his lawsuit when he had his day in court. When it comes to the Pinnacle Point matter, Mr. Schwyhart failed to pay his taxes, failed to honor his promises and failed to pursue his lawsuit when he had his chance.”

Testimony in the trial indicated the property taxes had been paid for 2007 and 2008, and the bank was still paying on 2009 taxes.

Schwyhart claims Metropolitan was charging an exorbitant rate of interest, 7.75 percent.

“They gouged me on the interest and caused the property to fail because of the exorbitant interest rates being charged,” he said.

Schwyhart said his initial floating-prime interest rate with Metropolitan was 4.25 percent, but when the loan came up for its annual renewal in 2009, the bank locked in the higher interest rate. Schwyhart asked Metropolitan to lower the rate to 5 percent, but the bank wouldn’t do it. Schwyhart said the foreclosure actions by Metropolitan since December have damaged his ability to sell the office park.

“It has distressed the property,” he said. “I think the higher interest rate was just to drive me away. I don’t know why they didn’t give me a competitive interest rate, unless they just want to break in and steal my property. ... I think that’s their motivation. They knew they were strangling me with interest.”

Schwyhart was asking for a judgment of $20 million against the bank.

“I don’t think that’s enough,” Schwyhart said. “I think I’ve been damaged more than that. I just want what’s fair and reasonable.”

After the foreclosure trial, the interest rate on the $38.9 million judgment was set at 5.5 percent “under Arkansas law.” Schwyhart claims that’s evidence that the 7.75 percent rate Metropolitan was charging him was too high.

Since the recession began in late 2007, Schwyhart has had 23 lawsuits filed against him. About 20 are active, he said.

Unlike other real estate developers who’ve filed for personal bankruptcy, Schwy-hart said he plans to keep fighting, but lawsuits and the recession have made it difficult.

“That’s not in my plans,” he said of personal bankruptcy. “I’d rather fight and try to get it cleaned up. At the end of the day, it’s what’s right. I’m being wronged. I still have faith in our system. I think justice will prevail.”

Schwyhart said his net worth dropped from about $75 million in 2007 to less than half that today.

Schwyhart is the manager of more than 20 limited liability companies. Nine of them have similar names containing the word “Pinnacle,” according to filings with the Arkansas secretary of state’s office. Schwyhart’s business partner in several of those companies is Robert Thornton, a former executive with Wal-Mart Stores Inc. who was a partner in Schwyhart’s first Arkansas car dealership in 1982.

Pinnacle deals

Bill Schwyhart, 53, was a lead developer of Pinnacle Point and Pinnacle Hills. The two adjacent commercial developments converted a cow pasture along Interstate 540 into a retail, restaurant, hotel and office complex containing some of the most valuable real estate in Northwest Arkansas.

But he couldn’t have done it — at least not on that scale — without J.B. Hunt, the founder of J.B. Hunt Transport Services Inc. of Lowell, who became his business partner on the development in 2003, four years after construction began on Pinnacle Point.

“It certainly enhanced our efforts at the bank,” Schwy-hart said. “Mr. Hunt brought a major name and strength to the picture. He wanted to do something big. This is his legacy, and he embraced every bit of it.”

After Schwyhart became a developer and opened an office at Pinnacle Point, his friend J.B. Hunt would come by and take naps on his couch.

“I’ve known Mr. Hunt for a long time,” said Schwyhart. “When he needed a place to lay down, I had a couch in my foyer.”

Schwyhart said J.B. Hunt was bored after he retired in 1995 and wanted to get involved in the real estate deals that were going on in the Pinnacle Hills area.

“It was killing him,” said Schwyhart. “The Embassy Suites out here, he wasn’t part of it. He kept saying, ‘Let me in that deal. I’ll close it for you.’”

Schwyhart said J.B. Hunt approached him.

“He came to me and said, ‘I want to be your partner,’” remembers Schwyhart.

Schwyhart said he received no financial backing from J.B. Hunt. Schwyhart and other business partners were responsible for their own investments.

Thornton and Graham, a former regional vice president at J.B. Hunt Transport Services, joined Schwyhart and J.B. Hunt in The Pinnacle Group, which spurred the development of Pinnacle Hills into what it is today. The Pinnacle Group was the most powerful force in Northwest Arkansas real estate development, with more than $1 billion in properties at one point.

Architect Collins Haynes of Rogers was the original developer of Pinnacle Point, along with Dave Watson, a former Wal-Mart vendor. They bought eight acres from the Walsh family and developed the first five lots in what was to become Pinnacle Point. Watson later sold his portion to Haynes.

Schwyhart, then a BMW dealer, joined Haynes on the project in 1999, the year ground was broken on the first two buildings in Pinnacle Point.

Then, in 2003, J.B. Hunt got involved, and the developers began using the name The Pinnacle Group.

But Haynes, who watched J.B. Hunt buy a multimillion-dollar jet on the spot one day, said things were moving too fast, so he sold his interest to the other four investors in 2004.

“They got too aggressive for me,” said Haynes. “It got a little too rich for my blood. It was a little too much debt. I got spooked.”

Haynes, who filed for Chapter 7 bankruptcy protection on July 29, said transparency was also an issue with The Pinnacle Group.

“It was not easy to get financial information on the companies that we were involved in,” he said.

With Haynes out, the group consisted of Schwy-hart, J.B. Hunt, Graham and Thornton.

The Pinnacle Group, minus Thornton, built Pinnacle Hills Promenade, the largest retail development in Arkansas when all the stores adjacent to the main center are included. The shopping center, which opened in 2006, was valued at about $250 million at that time, said Schwyhart.

To avoid confusion with other businesses that include “Pinnacle” in the name, The Pinnacle Group announced on Aug. 1 that it had changed its name to Hunt Ventures LLC. Johnelle Hunt remains chairman of the board. Graham is president of Hunt Ventures.

It seemed like fate that Rogers would have an outdoor shopping center patterned after Stonebriar in Frisco, Texas, Schwyhart said. Both Rogers and Frisco grew in part because of the St. Louis-San Francisco Railway, which was known as the Frisco.

“The two towns are connected 125 years later by General Growth Properties,” said Schwyhart, referring to the company that owns half of the shopping center in Rogers.

Alex Schwyhart, Bill Schwyhart’s son, remembers how close the partners were.

“Mr. Hunt wasn’t like family, he was family,” said Alex Schwyhart. “I saw him almost every day. On Sundays, we’d all go to church together, then go eat at the country club. My dad would pick me up after school and Mr. Hunt would be with him. They were very close. We still consider Mrs. Hunt our friend.”

In December 2006, wearing cowboy boots and a white Stetson hat, Johnnie Bryan Hunt, the 79-year-old trucking tycoon, slipped on an icy parking lot outside a cafe near Centerton and hit his head. He died five days later.

Hunt’s reins

In her office on the top floor of the six-story J.B. Hunt Parkway Tower in Rogers, Johnelle Hunt proudly displays her late husband’s parade saddle, which once belonged to the late actor John Wayne. J.B. Hunt used the saddle on Black Jack, an American Saddlebred horse, which he rode for 10 years in Springdale’s annual Rodeo of the Ozarks parade.

“It’s a beautiful saddle with a lot of silver on it,” said Johnelle Hunt. “Not like a saddle you’d use going over the hills chasing the cattle.”

Johnelle DeBusk married J.B. Hunt in 1952. Seventeen years later, he started a trucking company with five trucks and seven refrigerated trailers.

Mrs. Hunt said the day J.B. Hunt fell began like any other.

“He got up every morning at 5 o’clock and read his Bible for an hour or more, no matter where he was or what was going on,” she said.

After his death, Johnelle Hunt, now 78, said she felt it was her duty to step in and handle her late husband’s many investments.

Schwyhart said that’s when things began to change.

After Johnelle Hunt took over J.B. Hunt’s business affairs, Schwyhart said their meetings “started filling up with lawyers.”

“Really, Mr. Hunt was replaced by lawyers,” said Schwyhart.

Johnelle Hunt said it was only one lawyer, Ken Shemin of Rogers, and he started going to some meetings four months before J.B. Hunt died.

Shemin said he has filed several lawsuits on behalf of the Hunt businesses because of the recession and the failure of business partners such as Schwyhart to pay their portion of bank debt and capital calls, which are requests to continue funding projects.

In any event, the way Mr. Hunt had done business — on his word and a handshake — appeared to be over.

As majority partner in The Pinnacle Group, J.B. Hunt wanted to have control of the accounting functions, so bookkeeping duties were moved from Schwyhart’s people to Hunt’s people, said Graham.

At the time of his death, J.B. Hunt was involved in about 75 limited liability companies, Shemin said. The labyrinth of Hunt’s business investments had grown to the point that it was difficult to keep track of everything.

Feeling constricted by Johnelle Hunt’s reins and with the economy still at full gallop, in August 2007, Schwy-hart asked for a divorce from the Hunt businesses.

So Schwyhart, Thornton, Johnelle Hunt and Graham divvied up the $350 million worth of properties in the Pinnacle Hills area in what appeared to be an amicable split, with 40 percent going to Schwyhart and Thornton.

Johnelle Hunt and Graham ended up with most of Pinnacle Hills, which includes 200 acres and eight buildings from Pauline Whitaker Parkway to just south of Lewis and Clark Outfitters, at 2530 Pinnacle Hills Parkway. The deal does not include the Embassy Suites, which is owned by Springfield, Mo., hotel mogul John Q. Hammons.

Schwyhart and Thornton got 11 buildings in Pinnacle Point, which is the 22-acre development including Lewis and Clark Outfitters north to the Church at Pinnacle Hills and 11 acres of vacant lots. Johnelle Hunt and Graham kept two buildings in Pinnacle Point. Schwyhart and Thornton also own the 64-acre District at Pinnacle Hills.

Schwyhart also sold his 15 percent interest in the Promenade shopping center to Johnelle Hunt and Graham.

The 126-acre Promenade is now owned 50-50 by the Hunt partners and General Growth Properties Inc. of Chicago, which filed for Chapter 11 bankruptcy last year for 165 shopping centers and malls across the country. With local investors, the Promenade was not included in General Growth’s filing, which was reported to be the largest real estate bankruptcy in U.S. history.

“A lot of that Promenade has got my heart and soul in it,” Schwyhart said. “It took years to put that together. ... The first blush on that thing was a red-brick Arkansas look, and I KO’d it. ... Everybody here is from somewhere else, so I wanted a flavor of the best things in America here. We looked at shopping centers coast to coast. We didn’t want it to look like another hillbilly shopping center.”

The properties in the Pinnacle Hills area weren’t owned free and clear, though. There were mortgages and payments to be made. And in each case, the four original partners signed a guaranty. With J.B. Hunt’s death, Johnelle Hunt became responsible for his portion of the guaranty.

With the break up of The Pinnacle Group, Johnelle Hunt asked Schwyhart to get her and Graham’s names off the bank notes for property they had conveyed to Schwyhart and Thornton.

But that hasn’t happened.

In a separate agreement two months later, Johnelle Hunt and Graham conveyed to Schwyhart, Thornton and Calamos, the Chicago businessman, their interest in Pinnacle Air, which did business as Aspen Jetride. The company had 27 jets at its peak. Since then, Pinnacle Air has gone out of business, filed for bankruptcy and been the subject of lawsuits and countersuits by the former owners. Johnelle Hunt and Graham sued Schwy-hart, Thornton and Calamos for $30 million related to Pinnacle Air’s debt.

But the suit was dismissed because of Pinnacle Air’s bankruptcy. The plaintiffs now have the option to appeal, file the suit in bankruptcy court, settle with the defendants or drop the case.

“I don’t blame Johnelle for being upset,” said Schwy-hart. “I was doing everything I could to get [Calamos] to do what he said he was going to do.”

But Johnelle Hunt said Schwyhart, Thornton and Calamos were all responsible for the refinancing, so they were all named in her lawsuit pertaining to Pinnacle Air.

Recession arrives

When the recession hit, the market for securities backed by commercial mortgages dried up nationwide, Schwyhart said.

Schwyhart said he refinanced debt and got the Hunt names off of loans with Great Southern, Signature, Chambers and Private banks. The only problem was Metropolitan National Bank.

Schwyhart said he asked Metropolitan about refinancing, but the bank was operating under a letter from the Office of the Comptroller of the Currency, which limited the bank’s ability to modify loans. The Comptroller of the Currency charters, regulates and supervises all national banks.

“The Comptroller has found unsafe and unsound banking practices relating to some aspects of credit risk management, capital adequacy and concentration risk management at the bank,” stated the May 22, 2008 letter.

“Basically, they were one step before being shut down,” said Schwyhart.

As a result, Schwyhart said, Metropolitan demanded a higher interest rate on his mortgage.

Schwyhart said Metropolitan knows that Johnelle Hunt is good for her $12 million guaranty on Pinnacle Point, so the bank can take over the property, sell it at a discount and collect on the guaranty.

“I don’t think there are any banks out there looking for $36 million mortgages,” Schwyhart said. “Most banks are looking to shrink, not grow. We’re talking to banks every day.”

For nine months, Metropolitan had been trying to foreclose on the ten buildings at Pinnacle Point.

Schwyhart did three things that postponed the foreclosure. He filed suit, filed for Chapter 11 bankruptcy for the seven companies that officially own the buildings, and he fired his lawyer.

In December, Schwyhart filed a pre-emptive lawsuit three days before the bank sued to foreclose on the property, accusing Metropolitan of breach of contract.

Schrantz, on Tuesday, found Pinnacle Point Properties in contempt for not turning over $168,044 in rents it had collected from tenants between Nov. 27 and Jan. 19. Metropolitan had exercised its rights to the rents on Nov. 27, but a court order wasn’t issued until Jan. 19. A hearing on the contempt charge has been scheduled for Oct. 12 in case the judgment is not paid by then.

Schwyhart has yet to turn the rents over to Dewitt Smith, the court-appointed receiver.

“We applied it to past-due maintenance payroll,” said Schwyhart. “Only on the rents, but not after the judge signed the order [on Jan. 19]. There hasn’t been any money that came out of this office park that didn’t go back into it and then some. ... We didn’t take anything that was not rightfully ours. All of it was expenses on the office park. We gave the court a full accounting. It went toward the office park.”

Metropolitan argued that transferring the rent money to another one of his Schwy-hart’s companies to pay maintenance payroll from 2008 would amount to fraud under Arkansas Code Annotated 4-59-204 and 4-59-205.

The case was scheduled for trial in June, but Schwyhart fired his lawyer, James Penick of Little Rock, and hired Robert Rhoads of Fayetteville, so Schrantz postponed the trial until last week.

Judgment in a related Metropolitan case was issued last month.

On Aug. 9, Washington County Circuit Judge Mark Lindsay ordered Schwyhart and Thornton to pay about $1.1 million to Metropolitan related to an unsecured loan on which they had defaulted. Schwyhart said he hasn’t decided whether he will appeal the decision. The loan was originally for $2 million, but Schwyhart said he had paid about half of the principal. Schwyhart said the loan was related to Pinnacle Point.

Although each of his properties is under a separate limited liability company, Schwyhart said his current business, Pinnacle Investments, isn’t incorporated.

Schwyhart said Pinnacle Investments is just “a moniker.” But, according to the Arkansas secretary of state’s office, Pinnacle Investments LLC is the name of a company in Conway. And Pinnacle Enterprises, the name of an affiliated company in the same Pinnacle Point building, is the incorporated name of a company in North Little Rock.

Until Sept. 1, Schwyhart and Thornton were listed on Pinnacle Enterprise’s website, pinnaclenwa.com, as members of the company’s “team.” The site included photos and biographical information about the two men. But since then, the information about Bill Schwyhart and Thornton has been removed from the website. The website indicates the company has offices in Rogers, Memphis, Dallas, Los Angeles, London and Beijing.

“We have a presence there, yes,” Schwyhart said. “Wherever we have affiliates, that’s what those are.”

Schwyhart said his son Alex is in graduate school in London and travels to China on behalf of Pinnacle Investments. Alex Schwyhart is listed on the Pinnacle Enterprises website as “associate director, international.”

“We don’t have offices in those places, but we’re active in those places,” said Alex Schwyhart, 23, who is working on a master’s degree from the London School of Economics. “I split my time between three places —Arkansas, London and Beijing.”

Business bankruptcy

Among Schwyhart’s complicated listing of businesses are eight separate corporations at Pinnacle Point.

On April 20, Schwyhart filed bankruptcies for the eight companies, which contain a total of eleven buildings, under Chapter 11.

Schwyhart claimed unpaid debts of $41.6 million to two state banks — $35 million to Metropolitan and $6.6 million to Chambers Bank of Danville.

Chapter 11 is a request to reorganize the business and pay off creditors over time, as opposed to Chapter 7 bankruptcy, which normally entails liquidation.

Federal bankruptcy Judge Ben Barry threw seven of those petitions out, saying Schwyhart’s reorganization plan wouldn’t make the properties profitable. Metropolitan holds the mortgages on the seven properties.

“They dismissed me from Chapter 11 because they said I have no income to make a Chapter 11 work because all the rents belong to [Metropolitan],” said Schwyhart.

The one bankruptcy allowed to move forward was for Pinnacle Point Properties LLC. In addition to being the umbrella organization over the other seven companies, PPP owns a nearly 40,000-square-foot building at 5506 Walsh Lane, which was financed through Chambers Bank of Danville. Schwyhart said the interest rate on the Chambers Bank loan is less than 5 percent, which he said is manageable.

“We’re making our payments as usual,” Schwyhart said of the Chambers loan. “Metropolitan is the only one that’s charging exorbitant rates.”

Schwyhart said he has appealed the bankruptcy ruling regarding the seven properties to the U.S. Court of Appeals for the 8th Circuit in St. Louis.

Schwyhart said he owns about 100 acres in the Pinnacle Hills area, including 64 acres in a section called The District at Pinnacle Hills. The only building in The District is a Wal-Mart Neighborhood Market. Wal-Mart bought the real estate for that building. Land in The District has been cleared for future construction.

Schwyhart said the Bank of America has foreclosed on The District property because Pinnacle Air defaulted on loans for five of its jets. The bank has the loans on both the land and the jets. Bank of America claims Schwyhart and Thornton owe $27.18 million on the debt.

Genesis of Pinnacle

Schwyhart said his first big real estate investment was a $5 million venture in 1998 with James T. “Red” Hudson, the founder of Hudson Foods Inc. who died in 2006. They purchased several pieces of property along U.S. 71 Business in Rogers, where Schwyhart had his BMW auto dealership. Schwyhart said he spent 20 years acquiring property along 71B, with Hudson, Thornton and Gerald Johnston, a former chief financial officer at Tyson Foods Inc., as partners on different properties.

In 1999, Schwyhart, Haynes and Gary Clay of Kansas invested a combined $10 million for land would eventually become Pinnacle Point.

In 2000, Schwyhart partnered on plans to build a hotel with Hudson, Haynes, Johnston, developer Gary Combs and Carla Tyson, who was then married to Combs. It would be the first large building in the Pinnacle Hills area.

It was to be a $16 million, four-story Sheraton.

But John Q. Hammons, the hotel magnate, found out about it and told them they weren’t thinking big enough.

“Right before we were ready to build, John Q. came in and bought us out,” said Schwyhart.

Instead, Hammons built a $50 million, nine-story Embassy Suites hotel.

“Mr. Hammons said, ‘That area deserves something much better than what we were planning,” remembers Schwyhart.

Hammons also insisted that the new hotel go on top of a hill overlooking Interstate 540, so land was swapped to get that location, Schwyhart said.

Schwyhart said Wal-Mart was encouraging vendors to locate an office in the area, so he figured Rogers was ripe for prime office space.

“I was fearless,” said Schwyhart. “I felt like this area was ready for Class A office space.”

Haynes, the architect who came up with the idea for Pinnacle Point, remembers the heady atmosphere of the time.

“A year after The Pinnacle Group was formed, it got out of control,” said Haynes. “They got too aggressive in their purchases of undeveloped property and aircraft. They weren’t buying income-producing property. They were buying land.”

Schwyhart said the recession has been a learning experience for him. He’s converting his office into a sort of “war room” to get through the rest of the recession.

“The only way to get through is to learn,” Schwy-hart said. “And I’m learning a lot.”

Information for this report was contributed by Richard Massey of the Arkansas Democrat-Gazette.

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