Market Square project in doubt: Two months before deadline, condo developer won’t talk, scales back its sales effort

Keywords Real Estate

The city of Indianapolis already has twice pushed back the deadline for closing a deal with the developer of a high-rise condo project slated for the former Market Square Arena site.

Now, with the latest deadline of Aug. 31 looming, officials with developer Market Square Partners LP are incommunicado amid signs they’re struggling to find enough buyers to get the project off the ground.

The sales office, once staffed daily, now apparently operates on an appointment-only basis. The developer hasn’t made some required filings with the city, or requested construction permits. And two contractors filed lawsuits to collect payment for services.

Market Square Partners officials said last spring that ground breaking would occur in August. While they did not return repeated calls from IBJ, city officials say they think the project is advancing.

“We’re still very hopeful that we’ll see that development take shape on that property,” said Justin Ohlemiller, spokesman for Indianapolis Mayor Bart Peterson.

The city chose Market Square Partners to build a high-rise condo project on the site in February 2004. Late that year, however, backers announced they had failed to presell enough units to get financing.

In response, they tapped Chicago-based Mesa Development LLC to formulate a more marketable mix of condos for the $70 million first phase of the project. The new plan featured a 225-unit, 31-story tower with units ranging in price from $200,000 to $1.7 million.

But the development team, which includes locally based Shrewsberry & Associates and Columbus-based Smoot Construction, failed to line up enough buyers to meet the May 2006 deadline to buy the first two acres of the four-acre site from the city. In response, the city granted a 90-day extension.

In March, the developer told IBJ that buyers had reserved 52 units in the tower. Lenders require contracts-binding agreements secured by a nonrefundable down payment-on 40 percent, or 85, of the tower units to secure financing. Typically, not all reservations convert to contracts.

Up-to-date sales information was not available. Kurt Flock, whose Flock Real Estate Group is handling sales, did not return repeated messages.

The developer appears to have scaled back its sales effort. The office at 251 E. Ohio St. no longer has regular staffing. Calls are routed to a voice-mail message.

A former salesman in the office, who spoke on condition that his name not be used, said he left the position a month and a half ago because he wasn’t being paid.

“When I was there, we staffed [the office] seven days a week,” he said. During his tenure, employees booked reservations but didn’t execute contracts, because they hadn’t received final versions.

He said the office saw decent foot traffic and people loved the design.

“The challenge with Indiana is, people don’t want to pull the trigger and put money down until they see construction started,” he said.

The city’s latest extension pushed back most of the developer’s deadlines to Aug. 31, but some deadlines in earlier agreements remained and still haven’t been met.

For example, the partnership was supposed to give the city a “firm commercial lending commitment letter” by Oct. 1, 2005. It didn’t.

The partnership is also supposed to turn over the construction budget when it’s set and any letters of intent from retailers planning to lease space in the building. It hasn’t.

Asked if the city was concerned about that, Ohlemiller said it isn’t concentrating on this interim paperwork.

“We are very focused on holding to the Aug. 31 timetable,” Ohlemiller said. “That’s the timetable we’ve been looking at in terms of the important target.”

The partnership also doesn’t have the construction permits it needs for the ground breaking.

In April, it applied for a variance that would permit a 31-story structure on the site, but has not yet received it. It has yet to request a drainage permit, the first step in a process other developers say they start two months before ground breaking.

This year, the partnership has been hit with two court judgments in collection lawsuits filed by vendors. Hillenbrand Mitsch Design Inc. sued Market Square Partners for more than $92,000 it says it’s owed for interior design work and expenses. In June, a judge ruled in favor of the design firm in a default judgment; a decision on damages is pending.

In January, a different judge ordered the partnership to pay locally based Hamilton Exhibits LLC $20,510, Records show it’s now been paid.

Other developers pursuing downtown condo projects hope the negative signs don’t suggest the project will fail.

Locally based Kosene & Kosene Residential Inc. is putting the finishing touches on a three-story, 70-unit condo development next to the Market Square site. Managing Partner Gerry Kosene said about 80 percent of the units are sold.

“Even as a competitor, I really want that project to happen,” he said, adding that drawing more people to live downtown creates momentum and benefits everyone.

Kosene was part of a group that proposed a medium-density condo development for the Market Square site. He said Market Square Partners may be realizing how hard it is to get a residential tower presold.

“Trying to presell that many units and deliver within a reasonable time frame, that’s just tough to do. Indianapolis has not been a market heretofore that would accept presales in those kinds of quantities,” he said.

If Market Square Partners misses the Aug. 31 deadline, what happens?

“We don’t plan any extensions of that date,” Ohlemiller said. The city wouldn’t be required to solicit proposals all over again, he said, adding that it’s premature to discuss what it would do.

“We’re still 2-1/2 months away from the Aug. 31 target date,” he said. “We have worked with Market Square Partners during this process and given One Market Square every opportunity to succeed because we think it’s the right development for that prime piece of land.”

If the condo high-rise succeeds, the delays will have been worthwhile, he said. He noted that when Peterson took office, a three-story retail building was planned for the northeast corner of Washington and Illinois streets. With additional work, the city was able to put together a much grander project, the Conrad Hotel high-rise.

“Rushing to develop the [Market Square] site could have done it quicker, but wouldn’t have fulfilled the site’s potential,” he said.

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