The latest attempt to revive the 15-story Keystone Towers apartment complex appears to be in danger of derailing amid a threatened foreclosure and unpaid bills from contractors.
The landmark complex at Allisonville Road and Fall Creek Parkway on the northeast side has been largely vacant since 2001, when previous owners defaulted on the mortgage and the property was sold at a sheriff's sale.
The apartment complex, built by local developer George Ginger in 1974 as the VIP Center, originally included apartment and office components and was intended to be a crown jewel on the midtown Keystone Avenue corridor. However, leasing problems hampered the project from the beginning and the office space was eventually converted into apartments.
Current owner Keystone Towers LLC, a Columbus, Ohio-based company, purchased the building in 2003 and began renovations that are months behind schedule and far from complete.
The intent was to reopen the 284-unit complex to renters and some retail tenants last Septem- ber, but owners found more work needed to be done than they anticipated, including tearing out and rebuilding the driveway ramp to the building's first floor, said John Gregory, who's overseeing the project for Keystone Towers LLC. The current schedule calls for the building to open this September, Gregory said.
"We haven't abandoned ship," he said.
To keep the project alive, owners will have to contend with a complaint seeking foreclosure filed Jan. 13 in Marion Superior Court by a California-based group of investors who say the owner is in default on a $6 million mortgage the investors hold on the property.
Gregory said Keystone Towers is working on a plan to stave off foreclosure and satisfy its creditors within 90 days.
Besides the mortgage holder, several central Indiana contractors have filed liens on the property for work they've done but haven't been paid for.
One of the largest lien-holders is Martinsville-based American Restoration Corp. The company sealed and recoated the exterior of Keystone Towers last year but has been paid a fraction of its $230,000 contract, said owner Jim Bruhn. The company filed a lien against the owners for $210,000 in September.
Bruhn said he was told when he started the three-month exterior project that funds were available for his company to be paid.
"We're on our 11th year in business and we've never had anybody stiff us like this," he said.
Other local companies have filed liens totaling at least $135,000 against the property.
According to the Marion County Recorder's Office, Keystone Towers LLC has taken out two other mortgages on the property. One, for $1 million, was loaned by a California couple last July and is to mature this July.
The other, held by Burbank, Calif.-based Rehabbers Financial, is for $1.68 million and was taken out a month after the original $6 million mortgage.
The lender on the original mortgage is a group of more than 200 investors, primarily individuals and family trusts, most of whom own less than a 3-percent stake in the mortgage.
The investors, represented by local attorney Michael J. Fiewell, said in their complaint for foreclosure that Keystone Towers LLC was to make monthly interest payments of $65,000, or 13-percent annual interest, on the loan until December 2005, when the mortgage principal of $6 million plus the final interest payment would be due.
The last interest payment was made in August, the lenders allege. Fiewell did not return calls seeking comment.
Keystone Towers LLC took out the $6 million mortgage shortly after purchasing the property at auction for $1.05 million from Towers at the Point LP, a partnership that included locally based Van Rooy Properties.
Van Rooy became involved with the property shortly after a group of investors purchased the building at a 2001 sheriff's sale, said Van Rooy partner John Watson. The investors spent several months putting together cost estimates on the property before deciding a rehab wouldn't work financially, Watson said.
Towers at the Point listed the complex for sale, but few offers materialized, said George Tikijian, a multifamily specialist at the local office of CB Richard Ellis. The property was sold at auction to Keystone Towers LLC and its managing partner, Jorge Newbery, who bid against one other person for the property.
"You really have to wonder what's the viability of this property," Tikijian said. The building will require extensive remodeling to mechanical systems and interior finishes to be marketable, a cost that will be hard to recoup at competitive rent levels, he said.
Properties in the area don't typically command high rents, but several nearby apartment complexes are faring well, said John Sebree, a multifamily broker with the local office of Marcus & Millichap.
Sebree late last year brokered a deal to sell Fallwood Apartments, a 240-unit complex just northeast of Keystone Towers on Fall Creek Parkway, to locally based Buckingham Cos. LLC for $7.7 million. Buckingham is in the process of updating the complex.
To the west of Keystone Towers, a renovation several years ago of Marcy Village apartments on 46th Street proved successful, he said. Several other complexes in the area have also seen recent investments that have paid off for their owners, Sebree said.
"Some very positive things have happened in that submarket," he said.