Flaherty & Collins Properties picked a rough time to launch its most audacious project—a 53-story condo tower
in Charlotte, N.C., with a price tag topping $200 million.
The project—dubbed 210 Trade—would have been the tallest residential building in the Carolinas, with more floors than any building in the region except the Charlotte headquarters of Bank of America Corp.
But now the only thing spectacular about the unfinished project is the extent of the financial losses. Last month, Flaherty & Collins’ Charlotte FC LLC filed for Chapter 7 bankruptcy liquidation in Indianapolis, listing liabilities of $53 million and assets of just $197,492.
That doesn’t include the real estate—the primary asset available to sell and raise money for creditors. That value is elusive because property values have fallen in the recession and because the project is intertwined with a larger mixed-use development called EpiCentre that hasn’t lived up to expectations.
Charlotte FC had planned to build 48 floors on top of a retail portion of EpiCentre. It owns “air rights” required for its project, as well as part of a parking garage.
But it already appears clear there won’t be nearly enough money to satisfy the entire $31 million owed to Minneapolis-based U.S. Bank, the secured creditor first in line for repayment.
That likely leaves nothing for the other secured creditor, locally based House Investments, which is owed $6 million. The outlook is even bleaker for unsecured creditors, who are owed $15 million.
Many of the unsecured creditors are prospective condo buyers who made tens of thousands of dollars in down payments. Charlotte FC ended up lining up buyers for 264 of the 417 condo units.
“It’s pretty much an all-around unfortunate situation,” said Wendy Brewer, a Barnes & Thornburg partner representing Charlotte FC. “The folks who were involved in Charlotte FC, they’re as disappointed as the folks who put deposits down.”
The infusion from House Investments had helped Flaherty & Collins secure financing for the project four years ago without having to meet stiff pre-sale requirements that have scuttled many condo projects around the country, including one planned for the former Market Square Arena site in Indianapolis.
House and its investors provide what are known as mezzanine loans—high-interest financing that bridges the gap between what banks are willing to lend and what investors contribute in equity. Tim McGinley, the company’s founder and principal, did not return calls.
The condo project might be standing today had it not become bogged down in delays and disputes with the lead EpiCentre developer, The Ghazi Co. Condos originally were supposed to be ready for residents in mid-2008, a timetable that would have allowed Flaherty & Collins to sidestep last fall’s financial meltdown.
The two developers squabbled over nearly everything, including design changes and who was responsible for paying for which costs, according to lawsuits the companies filed against each other.
Charlotte FC, for instance, said Ghazi reduced the amount of parking available for condo residents and fell months behind completing the pad on which the tower was to have been built.
The first concrete pour for the tower didn’t occur until October 2007, putting Charlotte FC in jeopardy of missing the delivery dates spelled out in contracts with purchasers. Construction ceased five months later, with concrete in place for only 2-1/2 floors.
Charlotte FC said it negotiated for seven months with a lender that would provide additional financing needed to finish the project, but it ultimately backed out because of “the unreasonable positions and delays” of Ghazi.
Ghazi, on the other hand, contends that David Flaherty and Jerry Collins, principals of the firm, refused to consider financing options that would have required them to personally guarantee debt.
It contends the pair weren’t willing to put equity into the project, “thereby resulting in Charlotte FC being woefully undercapitalized and preventing Charlotte FC from obtaining adequate construction financing.”
That’s absolutely false, said Stephen Lee, a Barnes & Thornburg partner representing Charlotte FC. He said David Flaherty and Jerry Collins did guarantee U.S. Bank debt and each is going to end up losing more than $1 million.
The good news for Flaherty & Collins is the demise of the project has no impact on the company’s other operations, said company spokesman Mark Conover.
But it’s a humbling comeuppance for the company, which otherwise has a sterling record. David Flaherty and Jerry Collins, both former Revel Cos. executives, founded the business in 1993 with just a secretary and an eye toward property management and brokerage.
Their company now manages more than 12,000 apartment units in 10 states. It also has developed nearly two dozen projects, including the $37 million Cosmopolitan on the Canal along the Central Canal downtown. The Cosmopolitan’s first residents are expected to move in early next year•