Ben Israel knows a few things about building a business.

At 67, the Fayetteville optometrist-turned-developer has done it twice. The first one grew beyond his desire, so he sold it, making himself a wealthy man. The second collapsed amid the overheated Northwest Arkansas construction market as the national economy sank deep into recession in 2008.

Israel's network of development companies employed 130 people full time. At the peak of success in all things real estate, he broke ground on a four-story luxury office building planned to be a fitting headquarters for his enterprises.

His companies briefly occupied the top two floors of Commerce Park II, the swanky, glass-front office building where visitors pass through a revolving door, then are greeted by artistic water panels that give elevator riders the brief sensation of being in a waterfall.

Just down the street, on the busiest corner in Northwest Arkansas, is Israel’s most visible project, Nelson’s Crossing. The Tuscan-themed, two-story shopping center replaced an old motel at Joyce Boulevard and U.S. 71B in Fayetteville.

Israel’s companies once owned more than 1.5 million square feet of commercial and retail space and had plans to nearly double it with projects in Jonesboro and the Tulsa suburb of Broken Arrow. He started a business for every facet of the development process, from design to landscaping. In his spare time, he farmed cattle, bred Missouri Fox Trotter horses and traced his grandfather’s Confederate footsteps across Civil War battlefields.

Then the boom ended.

These days, Israel and one assistant manage about 150,000 square feet of commercial property from a modest office in a nondescript building tucked among a veterinarian’s office, a liquor store and his attorney’s office. He has a personal bankruptcy case moving toward resolution and has had dozens of lawsuits filed against him.

For his change of fortune, Israel puts the blame squarely on himself.

“You get egotistical and proud of things. Ego and pride always come before a fall,” he said.

Much of his time is spent dealing with lawyers and lenders. It's not the way he envisioned the latter stages of his working life. Israel wasn’t ready to retire after his first business. Now he can’t.

Building a company

Optometry was Israel's first occupational calling, not counting his childhood days helping out on the family's dairy farm near Greenwood. The farm was sold when he was in junior high school, an event he called “one of the happiest days of my life.”

“You milk cows twice a day, every day. Christmas Day was just like any other day,” he said.

After high school, he earned a pre-optometry degree from the University of Arkansas at Fayetteville, followed by an optometry degree from the Southern College of Optometry in Memphis.

Israel practiced optometry in Fayetteville for three decades, but it grew to be much more than a typical eye-care practice. Starting with a Sears store, Israel launched a chain of retail store-based Family Eye Care centers that grew to include 176 locations inside Wal-Mart and Sam's Club locations in 26 states.

During a one-year span in the early 1990s, Israel said, his company opened 90 locations because “that's what Wal-Mart wanted us to do.”

With about 800 employees, the business eventually generated annual sales of $40 million, and Israel had plans to take it public through a stock offering.

And yet, he said, it didn't feel right.

“When you grow that fast, you lose your own culture as a company. We had a company culture that I thought was great but, you know, when you open 60 locations in one year, you're hiring other people who have a culture from the company they came from, and you don’t have time to change their culture,” he said.

Israel's definition of his own company's culture: “Try to do everything you can to make it easy [for the customer] to make a choice to come back to you the next time they needed care. To be more interested in them than the money you were going to make from them.”

But he had investors — a group in England, another in St. Louis — that insisted he bring in managers who had earned master’s degrees.

“It just didn't work with our company,” he said.

So he put the Wal-Mart clinics up for sale in 1994, and a California company, which later would end up in bankruptcy, stepped forward. By 1998, he had sold the last of the Sears locations and other assets.

New Career

Israel declined to say how much, but at that point he was flush with cash — enough that he and his wife, Nancy, probably could have been set for life and turned their attention to their longtime hobby of raising Missouri Fox Trotters and perhaps even spend more than two weeks a year at their vacation home near Crested Butte, Colo.

But taking it easy is not Israel's nature.

“I can't just sit around and do nothing. I've got to be doing something all the time,” he said.

The lucrative sale of the optometry business allowed Israel to get into real estate development without partners for several years. Eventually, he said, outside investors were brought in to his growing Dixie Development Inc.

The original Commerce Park, at Joyce Boulevard and Old Missouri Road in Fayetteville, was among the first projects for which Israel needed partners.

“I didn’t go out looking for these people,” he said. “They came to us and said, ‘We like what you’re doing and understand people are making money with you.’”

Israel was quick to point out that, on all the projects he initiated, he invested more than any of the partners individually.

“If there was anything to lose, we had more to lose than any individual in the deal,” he said.

John and Betty Marinoni of Fayetteville were among those outside investors. They knew Israel through their daughter's friendship with his daughter, John Marinoni said, and trusted him “to our demise.” They also had been patients when he was still practicing optometry.

Having recently sold some land, they had money to invest. One of the projects they bought into was Commerce Park II on Joyce Boulevard. Israel wanted his own company to lease the top half of the building, leaving the bottom two floors for tenants.

John Marinoni said the prospectus for Commerce Park II anticipated a building cost of $60 per square foot. When he later checked the building permit for the project, he said, it listed a cost of $110 per square foot.

“So right off the bat, the numbers weren't going to work,” he said.

Investors were not notified of the change in anticipated costs, Marinoni said.

“More than just the real estate market going down in this area or in the country, I feel like there’s just a lot of mismanagement that added to the mix,” he said.

Israel said construction costs indeed ended up being greater than initial estimates, but that Marinoni’s assertion is wrong. Israel said the shell of the building may have cost $60 per square foot, but the total cost per square foot was always higher, by at least $50.

“Nobody ever said you could build that building for $60 a square foot,” Israel said. “That would be foolish.”

Betty Marinoni said the collapse of their investment was a big blow to their plans to travel during retirement. The couple declined to reveal how much money they lost.

“Unfortunately, this was our life savings. We’re 68 years old, so this has been horrendous,” she said.

“Thank God our house is paid for.”

After consulting a lawyer, and being advised they might recoup 5 cents on the dollar for what they invested, the couple chose not to sue Israel.

They still have a stake in one property in Bentonville, which John Marinoni said is “bringing in money, but just barely enough to halfway pay the interest. We’ve got such a big debt on it that it’s upside down.”

Israel said the Marinonis simply got in the game late and started investing shortly before the collapse. He said that when the market was strong, returns on investments were high.

“People tripled, quadrupled their money in a year in good times,” Israel said. “It’s the people that invested when things got too good that didn’t do well with their investment.”

Tom Fath, a real estate investor from Poway, Calif., near San Diego, was looking at some properties in Texas in 2004 when a real estate agent struck up a conversation with him about the rapid growth that was taking place in Northwest Arkansas.

That chance meeting eventually led him to a meeting with Israel. Fath visited the region, decided it had some potential for decent returns and invested in four projects with Israel, including Commerce Park II and Creekside Center on Mall Avenue, west of Nelson’s Crossing.

“Boy, was I wrong,” he said. “Essentially nothing he said on investments came to fruition. Everything failed.”

Two went into foreclosure and two were sold at a loss, said Fath, who is 68. He said he lost “hundreds of thousands” of dollars on the deals, but declined to reveal a specific figure.

“I just lost a major part of our retirement. We're having to sell our home,” he said.

Breaking Even

Israel said he and his wife also no longer have any chance of retirement, unless the market changes or they find something else “to put our lives into.”

He said that after repaying everyone they can, they’re basically breaking even month to month. Their secured income, he said, is roughly equal to their secured debts, leaving nothing to retire on.

Some of the investors who lost money don’t want to take responsibility for putting themselves at risk, Israel said. Also, there are instances of investors being ignorant of how the business works, he said.

“If they can blame someone else, they escape conviction of themselves,” he said.

Sharon Baggett of Goshen, a former real estate agent, was among the investors in an Israel project on Moberly Lane in Bentonville.

Two buildings on the site were finished and occupied in 2004, she said, but a third remained unfinished inside, awaiting potential occupants' preferences.

Instead of receiving dividends as expected for her investment, she said, she and other partners had to meet capital calls to keep the project viable. Israel managed the property for the investors.

“We were just told we needed to pony up the money for whatever,” she said.

Baggett also served for 14 months as principal broker for Israel’s company, Dixie Management.

Her financial toll as a result of involvement with Israel is not as heavy as some others, she said. She received some commissions that Israel owed her, and as a result of arbitration, Israel bought her interest in the Moberly project.

He’s fulfilled only a part of that obligation, Baggett said. She said she settled for about half of what she had invested, but declined to reveal figures.

Numerous partners-investors have been on hold while Israel’s bankruptcy runs its course, she said.

“If more prudent or careful decisions had been made, and better management, we could have prevented some of these issues, and I would underline the better management,” Baggett said.

Israel agreed that better decisions may have kept his businesses from going into bankruptcy. He said that while he takes full responsibility for the path he took his business, he did consult with managers, including Baggett.

“When things are good, everybody loves you; when things turn bad, you could have made better decisions,” Israel said. “Well, who couldn’t look at their life and say if I’d not made this decision I wouldn’t be in this pickle, but I take full blame and responsibility for this one. I could have said no to any of the suggestions of increasing our growth or whatever, but I thought we were making good decisions.”

Doing it All

As with the optometry business, when Israel got into commercial real estate development, he got in big.

Development was booming in the region. Contractors were in big demand. He didn’t want to wait.

“In Northwest Arkansas, if you had a project ready and you had a contract let for construction, you might get an excavation team to come or you might not,” he said. “You just had to get in line, and it might be three months before you could get your project started. And you had tenants that were waiting and you had people you needed to put to work.”

His solution: Do it all with his own companies. He developed a construction company, an excavation company, a landscaping company, a maintenance company, and a technology company to install telephone systems and computer networks.

Those businesses, Israel said, enabled him to cut costs without cutting quality.

“Vertical integration” can benefit a company, but it comes at a cost, said Raja Kali, associate professor of economics at the Sam M. Walton College of Business at the University of Arkansas at Fayetteville.

Kali wasn’t familiar with Israel’s case, but said generally speaking, a company may decide it needs to offer a service for various reasons. A company may offer a product or service that is critical to its industry, so that it can prevent competitors from access, he said. Or, as may be the case with Israel’s decision to start an excavation company, an additional business can ensure a company isn’t blocked by limited availability.

Kali said a company can increase profitability by buying a service from its own company. However, managers also must be able to phase out components of the business when the cost becomes too great, he said.

“There’s got to be a reason to keep the division,” Kali said. “Either it’s a critical input, of which there’s not many sources, or it’s either difficult or costly to reconstitute and it would be difficult to compete when the market resumes.”

SIGNS OF TROUBLE

Israel saw signs of trouble ahead and, in 2007, laid off 30 employees at his excavation company, declaring Northwest Arkansas overbuilt. He admits that by then, he had already gotten into projects that he otherwise wouldn’t have if not for the “130 people and their families that relied on us.”

The business model that worked well early on became unsustainable.

“I was like this hummingbird that gave birth to an eagle, “ he said. “As long as it was little, I could feed him. But as he grew bigger, I couldn’t flap my wings fast enough to feed him.”

When Israel announced the layoffs, he said he wasn’t getting out of the business, simply getting out of the area. His plan was to focus on projects in Jonesboro and Broken Arrow, where land prices weren’t so high.

When he first started building, land for commercial development could be found for $2-$3 per square foot. Toward the end of the boom, he said, some developers were paying $75 a square foot.

“You just can’t make that work,” he said. “Once you get past about $12 a square foot, it becomes a nightmare.”

It didn’t help that, leading up to the market downturn, Israel discovered and reported that his daughter-in-law, Emily Israel, had embezzled from the company. She was ordered by the court to repay $76,000, which she pleaded guilty to stealing over the course of about nine months while she served as chief financial officer for Dixie Development and Management. The payments are continuing.

As for pushing Dixie toward bankruptcy, Ben Israel said, “that was part of the deal, yeah, but we could have overcome that.”

At least, financially, he added.

“It has had its costs in relationships,” he said.

Nancy Israel contends her husband is the target of criticism because of the dramatic change in the real estate market and a national recession beyond their control.

“People tend to remember the downside and not the good side. People remember that they lost their job, but he gave them their job,” she said. “That bothered him a lot that he had to let people go. It really hurt that people were angry with him.”

Nancy Israel, who did interior design for the Dixie buildings, works as a legal assistant to Derrick Davidson, Ben Israel’s longtime Fayetteville attorney and office neighbor.

Israel’s need to pay his debts landed the couple in their own bankruptcy, mortgaged to the hilt. He put up everything the couple owns to borrow more than $3 million so they could pay Commerce Park II contractors — who had finished 80-85 percent of the work and had put liens on the project.

Israel tried to salvage the operation, but it wasn’t enough.

“Some of my best friends won’t speak to me because they blame me,” Israel said.

Israel and his wife filed for Chapter 11 bankruptcy on Sept. 29, 2008, at the same time they filed a Chapter 11 bankruptcy petition for Dixie Management and Investments. The filing allows a business to reorganize and pay off creditors over time, as opposed to Chapter 7 bankruptcy, which normally entails liquidation. A reorganization plan for Dixie, which will emerge as Mitosis, was approved July 7.

The company expects to complete the bankruptcy process next month, said Stanley Bond, attorney for the companies.

The court approved final bankruptcy details Sept. 17, meaning the new company can move towards repaying its debt. Bond said the plan is largely based on using $5 million in loans from Chambers Bank, which also allowed Israel to use cash to pay other debts.

“Chambers has come a long way to make this work for everyone,” Bond said.

Davidson said the Commerce Park II and Nelson’s Crossing projects had much to do with Israel’s financial demise. Israel had a 50 percent stake in Commerce Park II, while former partner Tom A. Muccio and other investors held the remainder.

Muccio, an early investor in Dixie, filed three lawsuits against Israel and his companies the same day Israel filed bankruptcy. Muccio sought recovery of about $1.2 million in loans and interest made to Israel’s company to build Commerce Park II.

Israel filed suit against Muccio on Dec. 17, 2009, to release financing tied up by a Springdale project. The two reached a settlement in May, but the suit remains scheduled for trial next month.

According to the settlement, Israel agreed to a consent judgment for breach of contract on behalf of Dixie in favor of Muccio for more than $5 million. As part of the agreement, Israel also dropped his claim that Muccio was responsible for half the $3 million that Israel and his wife put up to finish Commerce Park II.

However, since none of Israel’s companies exist anymore after the bankruptcy, both sides are writing off the debts and not exchanging money, Davidson said.

“It’s a walk-away deal,” he said.

By the time Nelson’s Crossing and Commerce Park II were done, Davidson said, the commercial real estate market had collapsed. He said Israel took on the additional debt, backed by his home, without consulting his partners, but expected to pay off the debt with long-term loans on the finished property.

Those loans were contingent on lease proceeds that never materialized, Davidson said.

At the time, Nelson’s Crossing was mostly empty. At Commerce Park II, a radio station occupied the first floor, but the second floor was vacant.

Israel’s own company was to occupy the third and fourth floors. But when prospective tenants backed off from nonbinding letters of intent to lease space in the building, Davidson said, Israel had no choice but to start laying off employees.

“He did nothing shady. He had more optimism than the market allowed him,” Davidson said.

Chambers Bank of North Arkansas, which held the mortgage on the Commerce Park II building, bought the property in November 2008 for $10.135 million, the amount of principal still owed, in a foreclosure sale. It was subsequently sold to TAM Investments LLC, a company owned by Muccio.

Muccio, a retired Procter & Gamble executive, and Israel were involved in a range of businesses, from commercial construction to soy-based spray foam insulation. Unlike the Marinonis, who decided against taking Israel to court, Muccio sued Israel over his management of Commerce Park II and Nelson’s Crossing.

Israel considers the two projects, about a mile a part, to be among his greatest achievements and also monuments to his misfortune. Muccio now owns both properties.

Numerous attempts to reach Muccio were unsuccessful.

As proposed in the bankruptcy case, Chambers Bank will receive what it is owed, he said. Creditors with claims under $5,000 will get paid, as will those who agree to reduce the owed amount to $5,000.

The next tier of creditors, Davidson said, may not receive anything.

Also, as part of the proposed plan, Israel and his wife will sell part of the property on which they live. The Colorado vacation home has since gone back to the lender in a foreclosure action.

“I think they did the best they could under the circumstances,” Davidson said.

Branching Out

In the years preceding the market collapse, Israel branched out into the residential construction business. Others seemed to be doing well, he said, so why not give it a shot?

Some early developments turned out OK.

“It wasn’t a terrible deal, but then we had two others that were late in coming on and they just didn’t do well at all,” he said.

He also looked beyond the Northwest Arkansas market, buying 125 acres adjacent to a Bass Pro Shop in Broken Arrow and building a commercial subdivision in Jonesboro.

“We were getting out of Northwest Arkansas. Not getting out, but reducing our development in Northwest Arkansas, moving into Tulsa and eastern Arkansas, because we saw the glut.”

Back home, his companies were finishing Nelson’s Crossing, as well as Commerce II, when “the bottom fell out.”

Israel’s assets were mostly equity in property. When that equity plummeted 30 percent in six months, he could no longer borrow money.

“That’s how developers exist, on borrowed money,” he said. “We probably lost $100 million in net worth in six months, maybe nine months. Once it started to fall, it dropped drastically.”

A partner in the Oklahoma project bought out Israel’s interest, but the plan never developed. In Jonesboro, he said, the project was too far along to halt. His partner there took over his debt, and Israel gave up his equity.

Nowadays, Israel manages three properties while healing from a horseback-riding fall.

He’s sold off $300 million worth of property, which he had valued at $425 million prior to the recession.

“We paid a lot of people portions of what they were owed. But unfortunately, we haven't been able to pay them all. And I regret that. I hate that. I hate that anybody got hurt as a result of dealings with us, with me,” he said.

Israel attributes the collapse of his business to straying from the three principles he established for himself when he started developing:

• Don’t get into any project that by itself would hurt the company.

• Don’t buy any property that doesn’t produce income.

• Stick with commercial projects.

Israel said a number of factors played into in his decisions to forsake his three principles. He said he wandered into residential development largely because he had a broker, Jenny Talley, pushing him to do so.

Talley’s prior success in residential sales, mixed with an excavation division idled by a lack of commercial projects, combined for a rationale to get into building subdivisions, Israel said. He said they stayed in too long after having great success on their Brighton Heights project in Bentonville, which Talley sold quickly.

Talley declined comment. She and Israel sued each other in 2005. In October 2006, a Washington County Circuit Court jury found Talley and Israel’s Dixie Real Estate were both in breach of contract.

Dixie Real Estate was ordered to pay Talley $464,369, but the award was reduced by almost $23,000 to reflect the jury’s finding that Talley also breached a contract.

Israel said being in residential development meant holding property that wasn’t making money. A subsequent project, Eden’s Brooke, also in Bentonville, didn’t have the same success, he said, and most of the homes went to the bank.

But the single project that could take down the operation was the 1.2 million square feet of commercial space planned for 102 acres surrounding the Bass Pro Shop in Broken Arrow, Israel said. He said the area was experiencing rapid growth, but the land costs were still low compared with Fayetteville.

Israel said they had engineering finished and financial backing for the project’s first phase, but things started falling apart in Northwest Arkansas. He said it turned out that they were late to the residential market at home, but too early to the commercial development in Broken Arrow.

“If we’d have had some tenants, it would have been a home run. But the interest on $25 million is a whole lot, so you can’t delay very many months and survive,” Israel said.

A Better Life

Israel said he was taught at a young age that bankruptcy isn’t something that honest people do — that it is something people do when trying to escape responsibility. Left with no other options, he said, he took the path that he said would give him the ability to make good on as many debts as possible.

Some, including his attorney, said they likely would have advised Israel not to put up his house to keep Commerce Park II going.

Israel’s investors may not be as satisfied with his decisions, but his friends still believe in him, said Bill Kisor of Fayetteville Mechanical Contractors Inc.

Kisor said he’s known Israel for about 30 years and despite his current predicament, he still holds him in high regard for his business sense. Kisor said a lot of people lost a lot of money because of the economy, and in most cases it wouldn’t do any good to pass judgment.

Israel is a man of strong character, Kisor said. That’s evident in the way he’s handled himself with his bankruptcy, he said.

“I’d do anything for him because I believe in Ben and I think he’s trying to do what’s right,” Kisor said.

Kisor said he knows his friend’s strength comes from a higher order than human faith. He and Israel were neighbors for years and also worshipped together at University Baptist Church.

The church has always been important to Israel, Kisor said, but it’s obvious that it became much more so when bankruptcy became a reality. Kisor said he watched his friend turn himself over to the Lord, and saw him grow more peaceful because of it.

“I think we grow in our faith, and I think Ben has grown in his faith,” Kisor said. “He’s probably more humble than he was. Of course, it would humble anyone — it should humble anyone.”

Israel said the ordeal did reveal who his real friends are, as well a new — and hard to face — perspective on himself.

“I’d become somebody I didn’t even like. Self-centered, self-interested, egotistical — all those things you hope you don’t become,” he said.

Though he doesn’t anticipate ever being fully retired, he says he has no desire to return to the hard-charging days of the past.

“I’ve got a better life now than I did in the midst of all that growth,” he said.