Wednesday, November 5, 2008

Waterview Tower: the naysayers were right for now

I'll toot my horn when I am right and admit when I am not. (I should make sure I am a lawyer, huh?) And this time the naysayers on Waterview Tower were right. First it was the trade credit insurance, then the liens, and now this. Alby Gallun moved a story this morning that Waterview Tower's construction loan with the Export-Import Bank of China is on hold. Anyone who said timing isn't important didn't develop real estate.

Yes, this means you have 26 stories of a building shell sitting across from my old office just sitting there. And this also means B of A could foreclose on its A&D loan. The liens themselves are usually defaults under a loan.

The one bright side -- if you can call it that -- is the number of condo and condotel units sold and a stated commitment from Shangri-La to the property. But even that cannot last forever.

So now we have one of those distressed situations that we've been talking about. What happens? Alby mentions the following:

Under one scenario, the developer would finish the hotel and sell the rights to build the condos later, when the condo market recovers. But running a luxury hotel while construction is under way on the building’s upper floors would be extremely disruptive and a potential deal-killer. Another option: Convert the current structure, a 26-story concrete shell, into apartments.
These are tough. First you probably have to get the city to sign off on it since the property is in a planned unit development. In addition, I'm not sure apartments are a great use there. Maybe build the Shangri-La alone and be done with it? Could you get some credit for not using all of your FAR? And the story correctly says that finishing the hotel now and topping off later would be very disruptive, and for a long time. On the other hand, the city is not going to look kindly on a shell sitting there for years at a time and will probably approve something reasonable. (At least the Spire is all below ground.)

Other possibilities Ably also mentions are ongoing are (1) a possible JV with a money partner, but I assume that partner will want a big piece of the action and perhaps control; and (2) selling off the project in chunks (hotel, parking, condo). I like option (2) the best; it is just a matter of a vertical subdivision and doable. (If not done already, I imagine the property might be vertically subdivided anyway at some point, if for no other reason than because of the condos and the hotel, etc.) The biggest issue will be dealing with the liens and such, although I suppose bankruptcy is also an option. And there are probably cash buyers that would look at this project and see a play in it, but only for the right price -- a price the developer may not like.