Monday, February 25, 2008

An inconvenient builder

Jim McLagan rode the golden crest of the latest moneymaking wave to wash over the American economy. Like many builders, he saw limitless money to be made as banks littered the region with home buying loans like confetti a Macy’s holiday parade.

At the peak of the city’s building craze, McLagan looked toward the end of Division Street and saw his fortune waiting in the wetlands hemmed by Newton and Outlook avenues. So when the city completed a $2.9 million sanitary sewer and water line to the area, he started borrowing. And he didn’t stop until he had amassed more than $5 million worth of loans in less than two years from Home Funding Finders, a Latham-based mortgage banker that once boasted there was no limit to their growth potential.

McLagan’s plan was simple: borrow the money, build the homes, sell them for above the market average and then pay off the loans. But what he didn’t count on is how precipitously the Spa City’s sparkling market would lose its luster, thanks to the inevitable sub-prime lending crash. Less than two years after he sold his first house on the block, McLagan was being hauled away in cuffs, charged with allegedly bilking more than $200,000 from his customers.

News of the arrest riled many small business owners and subcontractors still in the hole thanks to McLagan’s failed speculating. But a whole new layer to the flap was added last week, when the small contractor-turned-high end builder was plucked from the clink by none other than the Spa City’s recently installed Republican mayor. Even stranger was that McLagan promptly secured the legal counsel of E. Stewart Jones, a high-toned shark who has made quite a career of defending embattled Republicans.

J. McLagan Builders began to achieve modest acclaim in 2004, when one of his showcase homes in Stillwater was given the “Best in American Living Award” by Professional Builder magazine and the National Association of Home Builders. By then, he had made a decision to market his business as a high-end custom builder.

When the vastly over-budget sewer project was completed on Bensonhurst and Outlook avenues, it had the effect of turning acres of water-soaked scrubland into prime real estate. McLagan was quick to jump onto the building fray that rapidly ensued. At the time, developing the area seemed like a smart move; the Spa City’s market was at a peak, with home sale averages hovering around $250,000 for even a modest single family.

McLagan decided to one-up this market when he started developing what was then known as the Washington Crossings development. Instead of sticking with the average, he decided to go high style; elite even. Simultaneously, he was building another project called Nielson’s Landing, a development near Saratoga Lake with homes being offered for nearly $1 million.

Initially, McLagan’s excursion in venture capitalism appeared to be paying off. The homes on Outlook Avenue were each selling for more than $400,000, which was far more than what they were valued at. But the good times weren’t going to last long.

By 2006, Banks across the region started tightening up their purse strings as fallout from the subprime lending debacle reached Saratoga Springs, where reckless borrowing caused a massive over-inflation of the housing market. At the time, McLagan ironically served on a panel discussing the buying and selling residential real estate. He advised folks to investigate contractors in advance of signing them onto a project.

“Check the builder's references and go see the homes he has built,” he wisely advised in an article published in the Saratogian.

In reality, McLagan’s world was crashing down around him. Unable to continue his turn and burn style of developing and in the hole for thousand to his subcontractors, McLagan started searching for a ripcord, which manifested itself in the company “Elite Style Builders.” Starting in May 2007, the incorporated company sold four of McLagan’s former projects for a total of more than $2 million.

Meanwhile, things were going from bad to worse for McLagan’s business. County court records show he was sued three times between March and December 2007; two of the suits were for breach of contract. Tom Thibeault, the owner of Adirondack Appliances, told CBS 6 Albany McLagan maxed out his credit and then repeatedly dodged his calls to collect. The small business owner said he eventually sued the builder in small claims court and won back roughly 80 percent of what he had borrowed.

By November 2007, McLagan’s business had no less than $40,000 worth of federal tax liens on it. The hammer finally dropped on McLagan when he could no longer build the homes he had accepted down payments on. He allegedly bilked $158,000 from horse trainer H. James Bond and another $57,000 from a Spa City couple hoping to build on Central Avenue. Sources also claim McLagan stiffed the owners of DeLucia’s deli in Ballston Spa, leaving the owners holding a second mortgage on their property valued at more than $138,000.

But here’s where the story gets bizarre. In what seems like an act of sheer political stupidity, Spa City Mayor Scott Johnson brazenly bailed McLagan out of jail. Johnson would later tell the media he received a sobbing phone call from the builder’s wife, pleading for a $16,000 loan to pluck her hubby from the clink.

The mayor claims his son had befriend McLagan’s son five years earlier and that his act was nothing more than a family friend helping out in a time of need. And perhaps this is partially the case. There are also some suggestions that McLagan recently completed a project at Johnson’s home, which further muddies the waters.

Rationally, Johnson’s act makes no sense. The mayor rushing to the rescue was either a factor of unabashed stupidity or a move to protect a guy who has a few political favors to cash in; or perhaps both. Johnson’s act has willingly armed his opposition with an election’s worth of campaign rhetoric. While some now portray this purportedly benevolent move as admirable, it will look quite different to voters in 2009, once they receive the inevitable glossy mailer boasting Johnson’s record for bailing out big development.

It should also be noted that contractors building half-million dollar homes can usually afford the $1,600 it takes to purchase a $16,000 bail bond. This is especially the case for a fellow still in possession of at least three properties on Outlook Avenue with an aggregate value totaling in the hundreds of thousands. Even stranger is that McLagan can somehow afford an attorney like Jones and suddenly has some well-known names among the city GOP coming to his defense.

In other words, there is a lot more to this story than one fat cat coming to rescue another, despite Johnson’s ludicrous assertion that there is nothing “newsworthy” about the situation. And that story may very well lie with Home Funding Finders, which has a local branch in the Spa City. After all, this was the organization that afforded more than $5 million worth of capital to a builder with a pie-in-the-sky idea to build affluent homes in a historically low-income neighborhood built over recently mitigated wetlands.

27 Comments:

Anonymous Anonymous said...

Good title -- Good report.

I was in the company of simply wanting to see that this was just the story of someone helping someone else. Partisan attacks expected, I didn't want what appeared to be a good will gesture turn sour.

That said, the Mayor might have taken the wrong approach, when laundering the bond through someone else would have been so easy.

This contractor/developer's plight is a local example of what has been occurring all over the Country. All the details aside, the reality it still a lousy story. Understanding it doesn't make it better.

3:05 PM  
Anonymous Don said...

Barrow is in Alaska, b-o-r-r-o-w is the word that means to receive something temporarily expecting to return it. I wouldn't normaly make a comment but it is misspelled in EVERY blog.

5:21 PM  
Anonymous Anonymous said...

Scott Johnson is the world's smallest mayor. Not only is he short on stature. He's also short on brains and integrity.

This isn't Johnson's first political blunder, and it won't be his last.

By the way, I wonder if he thinks voters have forgotten about the trust fund he promised to create by donating his mayoral salary to pay for Jefferson Terrace residents to get GED diplomas.

Johnson and his pal McLagen both take the same approach to promises: They think they're just made to be broken!

5:48 PM  
Anonymous Uncle Smoove said...

Four separate topics here:

Victims are outraged that McGlagen was bailed out. The purpose of the bail system is to insure that the accused shows up for trial. With a family and house here in Saratoga, is he really a flight risk? Being bailed out doesn’t lessen the chance that McGlagen will do jail time. It just means he won’t have to wait in jail until his case is disposed of.

How can he afford to hire Stew Jones if he hasn’t got $1600 to post a bond? That’s a real poser. Sounds like he was scamming Scot Johnson to me. Of course, despite his rep, I don’t think Jones has won a case since the first Bush administration.

Is McGlagen a slimeball? Sure sounds like it. I don’t know the man, but it sounds like a classic case of a builder getting in over his head. Not the first time a buider has gone busto and left his clients holding the bag. At the very least, I’m guessing he’ll have to make restitution and pay some heavy fines. Wouldn’t shock me if he does some jail time and gets in touch nwith his feminine side.

Is Scott Johnson a stupid politician? Actually, he’s not acting like a politician at all. They ask you for money, they don’t ever give it to you. He didn’t post bail from the city coffers or his campaign fund. He just reached into his own pocket. How refreshing. I’m sure Valerie and her crew are already getting the smear pamphlets together, but I’m not sure how much impact they’ll have. The “all developers are evil” clan will never vote for a republican anyway. Scott will win or lose his next term based on what kind of shape the city is in a year from now.

6:44 PM  
Anonymous Anonymous said...

This comment has been removed by a blog administrator.

8:08 PM  
Blogger Horatio Alger said...

3:05,

Very true. I think McLagan is just the tip of the iceberg if the market woes continue. Given the state of the economy, this is pretty downright likely.

Don,

And what makes you think this wasn't a commentary on Alaska? Correction made, thanks for the editorial tip.

5:48,

I don't think you can damn any politician for one simple act. This one was a bonehead move, politically speaking. It's one his opponents will use against him come campaign season. But it's real specious to say "Scott Johnson is a bad mayor" simply because he bailed this guy out.

6:44,

What I suspect of McLagan is that he got in too deep, tried to work his way out and got in deeper. Surely this doesn't speak volumes about his character, but it's also tough to empathize with the mind set of a man literally watching his hard-fought empire go up in smoke.

Your assertion about Johnson is also a but off, in my estimation. It's impossible for him to NOT act as mayor; it's one of the unfortunate parts about the office. You get late night calls from reporters, you have to answer in a wide variety of capacities and your face always identifies you as mayor, no matter how much you assert your capacities as a part-time politician or private citizen.

In truth, what he probably should have done was simply offered the money to the wife instead of personally bailing the guy out. That's one of the other reasons I see his act as somewhat dubious.

James,

Comment removed.

8:56 PM  
Anonymous Anonymous said...

Johnson ran on a platform of being a hometown guy who hasn't forgotten his roots. It's nice to see he hasn't forgotten his friends either. Him bailing out a friend is a nonstory. How McLagan was able to get into such a sorry financial situation is the real story here.

5:50 AM  
Anonymous Anonymous said...

I really sympathize with McLagen - I guess from one business to another I can understand how you try anything to hang on to your company. You borrow, you try, you seem to get in deeper, and you try some more. I only hope that if/when I go "bust" people are a touch sympathetic. Of course my going bust won't cause pain to others. Just serious embarrassment to myself. There is no bailout to small business. So I sympathize.

8:06 AM  
Blogger BlueDog said...

"In other words, there is a lot more to this story than one fat cat coming to rescue another."

Ho, are you implying that there may be some connection among the city GOP, Johnson and Home Funding Finders?

10:49 AM  
Anonymous Anonymous said...

Great article, and your right, this is the tip of the iceberg, Jelenik construction is next, followed by Witt. Its in the cards... Just wait, let the fiasco begin!

11:23 AM  
Anonymous Anonymous said...

Here's the bigger issue nobody is talking about, if the developer wants to change zoning, trying to jam 20 homes into an area zoned for 5 and the adjoining neighbors object, it would take a "Super Majority" of the city council to change the zoning (4-1 vote). If McLagen is part of a group going for the rezoning, what would SJ do?

2:07 PM  
Anonymous Anonymous said...

Hasn't "his honor" now opened himself up politically for not being able to say no to any organization hitting the city up for a few bucks to "beautify the Spa City", hold a new 5k for charity or improve a playground not on city property.
If Johnson was able to take off his mayoral hat when he sprung McLagen then why not have the local girl scout troop ring his doorbell and ask "Mr. Citizen Johnson, we've read that you are generous and somewhat of an idiot. Would you please buy 500 boxes of cookies to put us over our goal?"
This guy just took no out of his vocabulary for the next two years.
A great addition to his first 100 days recap.

4:35 PM  
Anonymous Anonymous said...

Uncle smoove is braindead. Why blame Valerie Keehn for any of this. I was a supporter of Keehn and now support Mayor Johnson. The early returns would most certainly have me believe Johnson is doing a fine job. I will predict these two will continue to work to help out the city in different capacities. Maybe even work together to get something done the city has been unable to do up to this point.

6:58 PM  
Anonymous Anonymous said...

Madame Nxivm will work to help out the city?

Why didn't she try doing some of that when she was in office?

11:41 AM  
Anonymous Anonymous said...

"I was a supporter of Keehn and now support Mayor Johnson."

Ya and smoove is the idiot! ROFLMAO right...

4:28 PM  
Anonymous Anonymous said...

"McLagan promptly secured the legal counsel of E. Stewart Jones, a high-toned shark who has made quite a career of defending embattled Republicans."

Didn't Mr. Jones defend the counsel to Assembly Speaker Sheldon Silver when he was accused of rape charges a few years ago, and who subsequently confessed to a sexual assault charge which placed him on the NYS sex offender registry and caused him to forfeit his license to practice law? You make the almost explicit statement that Jones defends Republicans only, when that is demonstrably not the case. You could try to be a little more even-handed, on this point.

6:59 AM  
Anonymous Anonymous said...

Anonymous said "I really sympathize with McLagen - I guess from one business to another I can understand how you try anything to hang on to your company." etc. etc.

WHAT A FOOL!

He wouldn't have had to hang on to anything if not for his GREED.

6:09 PM  
Anonymous Anonymous said...

Umm, Don? If you're making a spelling critique (which I am all for, since Ho's copy editing is annoyingly sloppy) you ought to make damn sure you don't misspell any words in your post. Normally, anyway.

Fish Creek Lunker

11:32 AM  
Anonymous Anonymous said...

Little Scotty, the world's smallest mayor, doesn't seem to realize that officeholders aren't supposed to intervene in criminal prosecutions to do favors for their pals. Scotty isn't just corrupt. He's stupid, too.

Republican DA Jim Murphy is frantically trying to sweep this mess back under the rug by appointing a special prosecutor, but bumbling Scotty has unwittingly blown the lid off this latest corruption scandal. Big Jim is going to have a hard time trying to make voters forget that the Saratoga Springs Republicans will do virtually anything to help the real estate developers who bankroll their party.

If McLagen gets off with anything less than a long stretch in the slammer, it will be obvious that this is just another case of the GOP protecting its own.

BTW, which Republican judge is going to preside at McLagen't trial? All the local jurists owe their jobs to the same Republican machine that has already bailed out the defendant.

8:15 AM  
Blogger A small "r" republican for fairness said...

8:15

World's smallest Mayor? I don't think so. You, however, may be the world's smallest minded blogger.

Is height a relevant critical success factor when it comes to being on a city council?

How is Mayor Johnson corrupt?

If he is stupid, as you say, how did he make it through law school?

I would hardly call this episode a scandal.

I am thankful that you and the rest of the democrats are so lilly white and blameless. Makes me wonder how all these so called corrupt Republicans keep getting elected.

How's Val doin' these days?

7:41 PM  
Blogger shotinthedark said...

8:15 AM said,

"He's stupid, too."


His rags to riches story tells even someone with an average intelligence level that you don't know shit from shinola.

9:21 PM  
Anonymous Anonymous said...

Small dick for fairness! What a name! This McLagen is just another guy who squeezed the clientele he had and went one step further. THis should be investigated!

7:17 AM  
Blogger shotinthedark said...

Anonymous said...7:17 AM

"Small dick"

Hey anonymous 7:17 AM, why are you always posting about someone's dick?

What's your fucking problem?

7:28 PM  
Blogger A small "r" republican for fairness said...

Hey 7:17,

Nice to hear from you.

1) You're a pussy, if all you got is ragging on my handle.

2) I would think the fact that McClagen has been arrested pretty much guarantees it will be investigated-DUH.

3) You're girlfriend never complained that I was small. BTW, you might not recognize her tonight- I shaved her back.

While I was doing so, in between her murmurs of pleasure, I believe she said something like "That feels great, and please tell my retarded boyfriend to have a better comeback on the blog than the last time he commented...."

Your welcome,
Small "R"

12:26 PM  
Anonymous Anonymous said...

Small "r":

You asked how is Little Scott corrupt. Answer: He was brought up as a Democrat but abandoned his party not because of principle but because he thought he had to become a Republican to get a job. Isn't selling out corrupt?

You also asked how he made it through law school even though he's stupid. Answer: Have you ever heard of the University of San Diego Law School? Look it up. It's at the very bottom of the rankings. Even third rate students like Little Scott can get accepted.

Shot:

You asked how Little Scott was able to accumulate so much shinola. Answer: Simple. He joined an ambulance chasing Republican law firm that used its political connections to get a do-nothing assignment from Dennis Vacco, the most corrupt Attorney General in New York State history, to join the battalions of lawyers representing New York in the national tobacco litigation. When the case concluded with the multi-billion dollar settlement engineered by Michael Moore, the Democratic Attorney General of Mississippi, all the states shared in the windfall and Little Scotty's firm got a big fat payday for doing nothing.

Did Scotty's shinola come from hard work and intelligence? Nope. Republican corruption and dumb luck had a lot more to do with it.

5:38 PM  
Anonymous Anonymous said...

easy law school, or not, Scott did pass one of the most difficult state bar exams in the country....

After reading all the posts, I still hang out to the idea that "he didn't have to do it so blatantly."

Scott obviously had nothing to hide.... As for Jim, yes he really got himself in deep and it is not his greed that knows no bounds, I would say it is his pride. As humble as he appears, in person, his vanity for reputation may have been what took him over the edge... The agent that represented him even got screwed in the mix, which leads me to believe that even he thought he was going to worm his way out of it up until the bitter end.

PS: Witt will be fine... he has a lot of good friends, many old favors & now Brian Ward helping him out.... oh, and Scott Varley/Chad Perkins paying all his marketing bills certainly helps!

9:44 AM  
Anonymous Tom@Steel Buildings Utah said...

I just want to say that your pictures turned out really good. Thanks.

12:59 PM  

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