SKYE Condominiums and Hyatt Place Hotel

[dxartist]

http://www.charlotteobserver.com/breaking/story/109862.html

well, looks like the auction is tomorrow at high noon. Anybody want to guess how much it's going for it the auction goes through?

I'll guess $10,000,000

[atlrvr]

$18M

[uptowner]

$8M

[Charlotte_native]

From the article --> 'Verna owes more than $27 million to its lender, BB Syndication Services Inc. of Wisconsin.'

My guess, $27 million.

This is a foreclosure auction (unless there is some special type of auction for this other than the normal process, but they do list it as the courthouse steps typical auction), not a normal ol' auction. It is open to bidders, but the minimum price will be what is owed. Doubtful anyone will bid more than that so the bank will make the one and only offer of what is owed. It will then go into an upset period, but i honestly don't suspect anyone will want to take this over at that price PLUS the fact that if you buy a foreclosed property at the courthouse auction you buy it subject to all liens, encumbrances, judgments, etc. Who would want to take on all of that? If the bank takes it their trustees and foreclosure attorney's will have to clean the title to remarket. Not sure how all the of the pending lawsuits by the buyers will affect all of this either.

When the attorney's have sorted everything out and cleared title someone can come in and bid to buy this from the bank -- likely at pennies on the dollar.

[UrbanFuture]

From the article --> 'Verna owes more than $27 million to its lender, BB Syndication Services Inc. of Wisconsin.'

My guess, $27 million.

When the attorney's have sorted everything out and cleared title someone can come in and bid to buy this from the bank -- likely at pennies on the dollar.

If I were a boutique or luxury hotel developer/owner/group, I would be all over this once the title clears. Make an offer contingent on inspection, take a month to complete engineering and inspection, close, then hurry and finish it out and then I have a very nice boutique or luxury hotel (depending on finishes and services) in a great spot in Uptown, close to Nascar, close to the convention center, close to the square, close to epicenter and college, close to the arena, and backing up to the future brevard stroll district.

Any reason or logic against why this wouldn't work?

[RiverwoodCLT]

$25 millon - No bid was high enough so it goes to the banks.

[atlrvr]

In short, equity. The debt was $30M. A bank wouldn't loan on 100% LTV.

[Commoner]

^I don't understand that comment. Can you explain it in terms of the figures above please?

Not trying to speak for atlrvr, but a construction loan syndicate isn't going to lend $43M for a $43M project. As you point out, say they don't even lend $30M. Also, say you generate $3M in deposits. Assuming you get $30 from the bank and $3M in deposits from buyers, in order to make up for the ~$10M, if you don't want to personally put any skin in the game (as in 'from the personal equity of Peter Verna') you could, say ... form an LLC where you (Peter) invite investors (investors who probably aren't buying units) to make a capital contribution to the LLC (say you get 10 members contributing $1M each) and the LLC makes an additional capital contribution on the project. (It isn't a down payment because the lending syndicate doesn't get it - instead, it's capital applied to the project that gives the lenders comfort.)

This is one way of doing it. atlrvr will straighten me out of I'm off base.

[Nostyle]

$30 mil loan

$3 mil deposits

$10 mil equity

The loan was ~70% loan-to-value. Verna had to cough up the other 30%. As costs skyrocketed the loan stayed put, leaving Verna to pick up the difference out of pocket, which he obviously couldn't handle.

[atlrvr]

The above info was correct....lender debt is foreclosable. While equity partners may be able to personally go after Verna for their investments in the deal, they really have no claim to the property at this point. This is why Verna wants to win back this project, as do his investors, because they all know he doesn't have $10M or so laying around, and he probably not perfer getting sued even more and likely declare bankrupcy.

[palmetto75]

He's owned the dirt since '88 so he should be free and clear on that. That would be at least part of the equity.

[palmetto75]

It's official. The lender took it back for $17.9 mill with no other bids. Now subject to the 10 day upset period. Could also be subject to some liens. There must have been at least 200 people at the sale and several news crews. It was a little hard to hear the Trustee aanouce all the terms and was not quite a "typical" sale. Several local developers were in attendance including Ghazi.

[rockhilljames]

Atlrvr at $18m.

Dude.

[palmetto75]

^Yep its typically the case that all junior liens are wiped out, but this was by no means a typical sale. There were several nuances such as a structured deposit amount i/o the typical 5%. There was also preregistration to validate deposit amounts and even what Bank they were from.

It is only a somewhat educated guess, but I think it is entirely posible that the $4.9 mill in liens is still enforceable and that the sale is subject to this. The rational is based on the loan being a construction loan with direct draws to the GC based on completion of work. It could be that i/o of the bank paying out the draw to the GC they let them keep their lien in place after the foreclosure. That way the GC has a vested interest in the lender recovering as much as possible from the sale. The GC could be held to its contract to complete the building with the new purchaser and it could also solve some warranty issues. Again just a guess, but if this is the case I think it would bode well for the building get finished in a reasonable amount of time.

[Bynocerus]

I believe you're right unless one had the foreknowledge to file a lien prior to the deed sale, the condo owners are SOL.

Of course, that creates a new problem, namely, what rational person is going to invest on a once-foreclosed property that still needs a fair amount of work knowing that previous owners lost their equity stakes?

This is super-dee-duper speculative at this point. On the one hand, a developer probably needs to have the building 100% finished before seeing significant sales, but, on the flip, who wants to invest how ever many tens of millions necessary to finish a building with no owner collateral?

Prices as high as $700k? What's the ROI on that in a best-case scenario??? This is a dog, and unless some REIT firm's finance department is as good at sales as they are at NPV calculations, this might sit. For a while. A long while.

Edited for grammar

[UrbanFuture]

The observer is reporting a group called Summit Shores has bid 18.8 million and put down a 940,000 dollar deposit.

http://www.charlotteobserver.com/business/story/113841.html

[sleightofhand]

$18M

Seriously, how did you know that?

[dubone]

Wasn't it a large issue for Verna that he had sold so many units a long time ago at long-time-ago prices? It seems that with those contracts voided and with those people's moneys virtually stolen to pay for the construction so far that there should be a way to make the project survive going forward. It seems that by doing the final work to complete it, and selling it at current price points to cover necessary construction.

Obviously someone thinks it can be done, as they are bidding.

Hopefully, we don't see bids going so high that it once again jeopardizes the propects. But I guess they know the right calculations to know what they should bid.

[Bynocerus]

Obviously someone thinks it can be done, as they are bidding.

Hopefully, we don't see bids going so high that it once again jeopardizes the propects. But I guess they know the right calculations to know what they should bid.

I'd love to see this eyesore turn into a swan (Sorry for the mixed metaphor) too, but two things immediately spring to mind:

1) It's amazing to me how many foreclosed properties become foreclosed on over and over again. Clearly, a company with roughly 20 mil is much more highly capitalized than some "investor" who bites off more than they can chew, but might it be prudent to assume that, regardless of whether or not it's a Yorky or a Mastiff, we're still talking about a dog

2) If memory serves me (I've mentioned before that I received literature for this project YEARS ago), the prices ranged from the 200s to 700-ish? I'm pretty sure the solution is not splitting the difference, so let me take a different tack. Suppose the winning bid is $20m, including the cost of perfecting the title and resolving any mechanic's liens and such associated therewith. Further suppose it takes 4 months to resolve the matter, and construction begins immediately. Further assume it takes *only* $15m to replace/restore any wear and tear and complete the project. Finally, suppose I sell out the entire building in one year, receiving the payoff exactly 12 months in the future.

My cost of capital is probably 10%, as most companies still don't have lots and lots of access to the debt markets or that kind of dough in cash (I'll be raising funding vis-a-vis the equity markets), so I need to make at least $39m JUST TO BREAK EVEN.

But what if I wind up paying off the $5m in lawsuits as an act of good faith? Now I need $44m. What if previous owners file lawsuit after lawsuit and create a legal minefield that takes five years to resolve? Even assuming I don't have to pay off the previous owners, my break-even is now $56m. Am I gonna get that???

I googled the new high bidders and got nothing. Could mean nothing, but it smells, well, weird I guess is the word.

What would really make this project hum is a public/private venture that would give potential investors some kind of guarantee (as governments could resolve the project over a much longer time table at a much lower cost of capital). As things stand, I wouldn't touch this with a ten foot pole, and my impression is that only the foolhardy would go after this project.

<---- Consulting and finance background

Edited for grammar

[MZT]

I've dabbled in residential foreclosures before, and have observed that sometimes a speculator is willing to plunk down the 5% deposit while they wheel and deal behind the scenes trying to flip their position to someone that can actually close. (If another investor steps in and makes another upset bid, it's no loss to the original speculator, who will recive a refund). In residential, it's just a few thousand dollars at stake, and the speculator can afford to lose that from time to time.

940 grand is quite a pile to walk away from if necessary... so I would assume this LLC has the liquidity to close. But, the history of this project has been riddled with players who could not fill their own britches... we'll just have to wait and see how it turns out.

I also would not be shocked if this LLC was formed solely for this purchase. There may be some people in the background that do not want to be known. If the bid is won, the LLC itself can be sold to another entity, without the inital speculators ever being disclosed.

[Charlotteman]

From reading the recent posts re: the Park's auction etc, it's looking like this is the biggest mess any of us could have imagined.

I haven't been to Myrtle Beach in over 25 years, so I haven't personally seen this kind of thing happen before. I'm still quite shocked about the whole thing. Most of us abhor governmental intrusion into private business matters----but in this case, perhaps the City of Charlotte's direct involvement is the only real way to get this thing completed.

[monsoon]

I haven't been to Myrtle Beach in over 25 years, so I haven't personally seen this kind of thing happen before. I'm still quite shocked about the whole thing. Most of us abhor governmental intrusion into private business matters----but in this case, perhaps the City of Charlotte's direct involvement is the only real way to get this thing completed.

There is a lot of carnage in Myrtle Beach, the only area in the Carolinas with more highrises than Charlotte, that is spread across the market there. It ranges from work stoppages on high rise beach front condos, to the almost collapse of the very high profile super trendy mixed used development the city and developers have been constructing on the former Myrtle Beach Air Force Base land. There is a brand new urban type grocery store in this development that is having to run big discount specials just to get people to go there to shop. Apparently there is almost no one living in the homes built so far.

The median price of a home in Myrtle Beach has dropped over 11% the first 6 months of 2008. It's relevant here for two reasons. First Myrtle Beach has a large number of condos in high rises or mixed use type developments. Second, MB, IMO is further down the curve on this than Charlotte.

[kennethlin]

I googled the new high bidders and got nothing. Could mean nothing, but it smells, well, weird I guess is the word.

What would really make this project hum is a public/private venture that would give potential investors some kind of guarantee (as governments could resolve the project over a much longer time table at a much lower cost of capital). As things stand, I wouldn't touch this with a ten foot pole, and my impression is that only the foolhardy would go after this project.

<---- Consulting and finance background

Edited for grammar

While, it's true that NO ONE in their right minds should be touching this...I will say this: There are only 2 reasons why someone would think about buying this project and completing it. A) That bidder is so overly loaded and in love with Charlotte that he/she doesn't want to see an eyesore, with a potentially devestating impact to the city landscape and economic value hurt any future development in the Uptown boom, or B) the potential winner has NO INTENTION of completing this project as its original intended purpose.

I believe it's the latter, and I also believe the highest bidder is going to get rid of this project as a condo and use it more for a retail/hotel/apartment mixed use building. Financially, it makes the most sense, as we all know Uptown is severely lacking retail, rental, and transient hotel living. With its close proximity to the TWC Stadium, future Nascar HOF, and a short distance to the Panthers Stadium, while sandwiched in between the banks, whoever gets this building, finishes it off, and clears all the contract issues is going to do just fine. Plus, the structure has more than ample parking to serve those purposes. There is more than enough parking to serve customers, hotel guests, and shoppers altogether. Plus, with the fact that only the exterior shell is complete, while the interior still has MANY issues to clear, this makes perfect sense for whoever is bidding this. They only have to complete the exterior to what is already done, and only spend minimal $ on interior walls and lower end fixtures for a hotel/apartment purpose. Not saying that's what I would like to see, but honestly, that's the ONLY reason why I would see anyone thinking about touching this given it's dire history.

From what I remember a buyer of this project told me, the contract stipulates that the builder is ALLOWED to use the deposit money for construction costs? That was already a sign of bad things to come, and unfortunately, it really happened. I've never heard of that, and quite honestly, I don't think many of the buyers, including my friend, were thinking about the consequences of letting that happen. Let's just say, they were all caught in the condo crazy hype, and I remember my friend telling me he's already made $100,000 without even moving into his place back in 2007! Boy have times fell hard on these Park investors, and I truly feel bad for them. I guess this is a lesson of don't let greed get you, because if it does, there's no stopping it. And I think we can all attest to the current status of financial and real estate markets worldwide. Let's just hope the storm has calmed and we can move forward from here, especially for the Park investors.

Hiring an attorney to try to retrieve their deposits is going to be extremely difficult, especially given that the property has already been foreclosed, the city owns it, and all the new winning bidder has to do is to pay his/her bid offer and any liens associated with the property. Plus, even if the attorneys do get a case, they will charge SO MUCH to win this case that most of the money will go to them anyways. It's truly tragic.

[Charlotte_native]

From what I remember a buyer of this project told me, the contract stipulates that the builder is ALLOWED to use the deposit money for construction costs? That was already a sign of bad things to come, and unfortunately, it really happened. I've never heard of that, and quite honestly, I don't think many of the buyers, including my friend, were thinking about the consequences of letting that happen.

I've never seen this in a contract before and I'd bet that buyers and/or their agents didn't even know to look for it. Builder contracts are large documents and (right or wrong) I think most people sign them without much due diligence. It is a BAD sign that a builder would want or need to do this. Using deposits for working capital -- wow, what could happen is exactly what did happen.

I'd bet that new project contracts will be scrutinized much more for stuff like this down the road.

[jfuptown]

I've never seen this in a contract before and I'd bet that buyers and/or their agents didn't even know to look for it. Builder contracts are large documents and (right or wrong) I think most people sign them without much due diligence. It is a BAD sign that a builder would want or need to do this. Using deposits for working capital -- wow, what could happen is exactly what did happen.

I'd bet that new project contracts will be scrutinized much more for stuff like this down the road.

While speaking only from personal experience, I believe it's rather common for developers to exchange your deposit into a working capital or "progress payment" account after the contract cancelation period ends. Novare used it in my Ave presale contract. I was aware of it when signing, but agree that many people don't read what they are signing.