So let’s suppose you borrowed half a billion dollars on a luxury high-rise with all the goodies — multimillion-dollar condos with amazing views, a Ritz-Carlton hotel, prime office space, the works. Now let’s also suppose you broke ground on your 35-story tower in 2019, less than a year before COVID and the resulting lockdowns hit.
You might start feeling a little nervous because you borrowed $510 million for a $600 million building — and your creditors would very much like their money back.
Finally, let’s suppose your primo high-rise went up in downtown Portland, just in time for the George Floyd riots — and downtown’s resulting slide into a permanent vegetative state. Business is bad. Very bad. You’ve sold just a dozen of the 132 luxury condos, leased less than a quarter of the office space, and hardly anybody wants to book a room at the Ritz.
You can stop feeling nervous about those creditors — they’re banging on your door already.
Also, we don’t have to suppose anything. The story I told you is about Portland’s pricey Block 216 tower, and it is 100% true.
Monday’s Post Millennial headline reads: “$600m Portland Ritz-Carlton building may be liquidated after catastrophic opening following Antifa riots and Covid,” but nobody is actually going to liquidate a 35-story skyscraper — no matter how cool that would be or how many laser beams would be involved.
But going forward won’t be easy, now that the $510 million tower is estimated to be worth just $425 million, and the two lenders are now at odds over what happens next to Block 216 — one lender wants to take ownership, and the other wants its money back.
“Court documents stated that Ready Capital and the borrowers were planning a deed in lieu of foreclosure that would give Ready Capital ownership without a foreclosure auction,” the Post Millennial reported. “The lender, Broadway EB-5, which loaned $49 million, asked for an injunction to halt the transfer.”
The New York Supreme Court, where the suit was filed, has the happy job of deciding how both parties will get their fair share of $510 million out of a $425 million building.
In a report last month, OregonLive quoted one lender admitting that Block 216 suffered “catastrophic setbacks from the beginning.” Ready Capital Managing Director Alex Ovalle said in a court document that the Ritz-Carlton “has lost significant bookings both of event space and hotel rooms because guests are unwilling to book a vacation stay, wedding reception or conference with a hotel whose ability to provide services is uncertain.”
“Likewise, the sale of residential condominium units and the lease of office space has been depressed by the Project’s uncertain financial situation.”
Maybe — just maybe — it’s time to give up on the “luxury” concept and start cutting prices until the hotel can book rooms and buyers and renters can be enticed into the condos and office spaces.
I try not to read too much into these stories about bad commercial real estate decisions. As a Longtime Sharp VodkaPundit Reader™ explained in the comments section a while back, the industry’s running joke is that nobody knows what a commercial property is really worth until it’s been sold at least twice.
But isn’t it funny how so many of these disasters keep landing in the bluest dots on the map?
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