In southern Delaware, evidence abounds of real estate, banking collapse

SUSSEX COUNTY, Del. - The sign for the Heritage Commercial Center in Bridgeville is blank except for a number to call about leasing one of six empty parcels.

The proposed center was meant to draw residents of the 800-acre Heritage Shores housing development nearby.

But at Heritage Shores, launched in 2005 toward the end of the national real estate boom, only 284 of the planned 1,816 units have been sold as of June 30, putting a big dent in the demand for new stores. The number of houses built and sold is nearly 1,000 fewer than projected in early 2008.

That scene of plans gone awry along Route 13 in southern Delaware is emblematic of Sussex County's real estate collapse, which played a significant role in the sale this month of Wilmington Trust Corp. to M&T Bank Corp. at a 50 percent discount of its stock price.

There is no sign that Wilmington Trust, founded in 1903 by members of the du Pont family, was involved in Heritage Shores, but bank executives have spoken repeatedly about problems in southern Delaware, where subdivisions in poultry country - a full 45-minute drive from the beach - are sold as shore communities.

"The problem that we've been contending with for the last several quarters is . . . that we have a tremendous concentration of our loan portfolio, particularly the construction portfolio, down in southern Delaware," Donald E. Foley, Wilmington Trust's chairman and chief executive officer, said in a Nov. 1 conference.

From 2000 through 2008, Wilmington Trust lenders poured money into real estate, mostly single-family developments, even after the number of building permits started falling in 2005.

In the fall of 2006, an analyst in an earnings conference call asked a bank executive if he had data on the number of houses for sale in Delaware, wondering if it was increasing as it was in Florida.

"Honestly, I don't have the inventory levels. I'm sorry to tell you that, no," said Robert Harra, the bank's chief operating officer.

Harra and other Wilmington Trust executives expected retirees moving into southern Delaware for the lower living costs to keep the housing market healthy. They also thought they were protected by the financial strength of local and regional builders.

"Maybe they have a different set of builders," former Wilmington Trust chief executive Ted T. Cecala Jr. said in early 2008, when an analyst questioned him about Wilmington Trust's lack of loan difficulties compared with competitors with a similar focus.