Will Change In Ownership Of Town Square Clear Way For Renewed Sales?
The privately owned condominium/retail complex in Burien’s Town Square could finally begin filling up next year.
Developer Urban Partners transferred title of its six-story building to BTS Marketing LLC on Oct. 29 – ending more than a year of uncertainty about the future of this mixed-use project.
Chicago-based Corus Bank, which held Urban Partners’ construction loan, was closed and its assets seized by the Federal Deposit Insurance Corporation (FDIC) on Sept. 11, 2009 – just three months after the complex opened.
BTS Marketing is an affiliate of Corus ST Residential – comprised of the FDIC and several private investors – which became holder of the construction loan.
Corus ST Residential assumed ownership of Corus Bank’s residential construction loan portfolio after the bank failed. Corus ST Residential has no connection to now-defunct Corus Bank.
Now that ownership of the building has been transferred – avoiding a trustee’s sale of the Town Square property, which was in foreclosure, or filing for bankruptcy by Urban Partners to avoid a sale – what happens next?
Spokesman Peter Marino told The B-Town Blog:
“ST Residential will spend the next several months determining what additional investments to make in the property and when to re-launch it into the marketplace.”
ST Residential has retained Urban Partners to manage the condo/retail complex. Urban Partners also still owns two vacant parcels that, when eventually developed, will complete the Town Square project in Burien’s city center.
The change of ownership “moves the ball down the field and in that sense is a very good thing,” Burien City Manager Mike Martin said. “We don’t control the economy, but this does begin to position the project for that moment when it does change.”
Dan Rosenfeld, a founding member of Urban Partners, agreed it “is good in the sense that it frees up a single party to move forward with the sales of condos and the leasing of ground floor retail.”
Although no longer a member of Urban Partners, the city’s private developer of Town Square, he remains an investor in Urban Ventures, which owned the building and owns the two vacant parcels.
ROSENFELD FAULTS OBSTRUCTION BY FDIC
As long as a cloud of uncertainty about their construction loan and continuing ownership of the Town Square property “was over us, we were unable to move forward” with selling condos and leasing retail space, Rosenfeld said.
And he placed the blame for that uncertainty – and for the failure of negotiations between Urban Partners and Corus ST Residential – squarely on the FDIC.
“I am disgusted that the United States government would act as a predator in this community,” Rosenfeld told the B-Town Blog.
“The buyer [BTS Residential/Corus ST Residential] is 60 percent owned by the FDIC. When the lender [Corus Bank] – not the borrower [Urban Partners] – went into default, the FDIC refused to negotiate with us.”
The FDIC “refused to sell us the loan, which we offered to buy at a premium, and refused to negotiate new terms. Instead, the FDIC sold this loan as part of a package to a speculator from New York while keeping a 60 percent interest for the federal government.
“So, in effect, it’s the U.S. government that’s meddling with the real estate market in downtown Burien,” he added. “I think it’s disgusting and that’s not what our government should be doing. None of this would have happened if the FDIC hadn’t intervened….
“We understood the economics of the market. We understood what the prices should be. We understood what should be done to restart sales. But the FDIC … refused to allow us to go forward.”
Rosenfeld said the FDIC has “blown out one development after another [and] the profit goes to the feds. That’s a bad policy for the federal government to have … taking investments from private businesses.”
Given these circumstances, the property transfer “is good for the city of Burien because it will clear up title and allow the owner to complete the sales of condos and the leasing of the ground floor.”
Only six of the building’s 124 condo units were sold and none of its 19,700 square feet of retail space for shops and restaurants was leased before the failure of Corus Bank put marketing them on hold.
“I have no doubt that Burien Town Square will be an outstanding successful project, that every unit will be occupied and all the ground floor leased,” he continued. “That’s what we promised and that’s what the community will get.
“This is a first-class project and it just needs to fill up.”
Rosenfeld said their intent after negotiations failed was for the transfer of title from Urban Partners to BTS Marketing/Corus ST Residential to be “seamless. At this time it is best for the project.”
And he stressed the fact the title “did not go back to the original lender” – the failed bank – “is an important distinction. Urban Partners didn’t default. The lender [Corus Bank] defaulted. We had no bank to negotiate with.”
HISTORY OF THE LOAN
Urban Partners financed construction of the Town Square complex with a $38.5 million loan it secured from Corus Bank of Chicago in 2007.
The nation’s housing market began to collapse a year later, eight months before the complex opened in June 2009 along with the Burien Library/City Hall building and Town Square Park.
When the FDIC closed the bank, which was a major construction lender, it seized the assets of the financial institution. Urban Partners initiated negotiations with the FDIC to buy back its construction loan.
However, ST Residential [now Corus ST Residential] – an investment group formed by the FDIC, Starwood Capital Group and four other private investors – subsequently became the holder of Urban Partners’ Town Square project loan.
The FDIC rejected the offer by Urban Partners and sold a 40 percent share of Corus Bank’s construction-loan portfolio to the investors, while holding a 60 percent ownership interest for the federal government.
When negotiations between Urban Partners and ST Residential stalled, casting doubt on the developer’s ability to retain its ownership of the Town Square property, Urban Partners stopped repaying of the construction loan.
ST Residential responded by filing on July 26 a notice of foreclosure. If Urban Partners did not make a past-due payment of $3.5 million by Sept. 1, the building would be subject to an Oct. 29 trustee’s sale.
Urban Partners owed approximately $34.8 million on its construction loan when the property title was transferred to BTS Marketing/Corus ST Residential last week. Only the 118 unsold condos and retail space are affected.
“We are extremely proud of what we’ve accomplished with the city and the extraordinary building we have given the community,” Paul Keller, principal and founding partner of Urban Partners LLC, said in a news release announcing the title transfer.
“We want to continue to be involved in its success” – now as manager of the mixed-use complex, Keller added.
The release noted “the move came after the venture was unable, after months of good faith negotiations, to restructure the … debt used to help finance the project. After careful consideration … [Urban Partners] decided not to use bankruptcy as a defensive strategy to keep control of Burien Town Square.”
Matt Burton, principal and chief financial officer of Urban Partners, said “a battle over the property or a contentious bankruptcy proceeding” would have been detrimental.
Neither action would have been “in the best, long-term interest of the project, its residents, the city of Burien or Urban Partners’ long-standing investment in the community.”
Urban Partner was retained by Corus Construction Venture LLC, an arm of BTS Marketing/Corus ST Residential, to provide ongoing management services for the project because of its “historical knowledge” about the Town Square development.
Those factors include Urban Partners’ “knowledge about the building, buyer demographics, retail leasing and competitive properties in the area along with [its] significant relationships with community residents, businesses and city officials.”
ROSENFELD TALKS ABOUT TOWN SQUARE
Despite the bank failure that led to Urban Partners’ transfer of title to the new holder of its construction loan, Rosenfeld remarked, “We’re still very proud of what we did. It’s the finest town square development there is. It’s as good as any in the nation.
“Phase I is there. It will be filled up. I just don’t know how fast they will fill up. And I have no doubt the other blocks will be developed – just not right now. The real estate lending markets have not thawed yet.
“It’s not going to be quick,” he continued. “Nobody’s going to build another 120 condos on speculation. Everyone knows what’s going on in the overall economy. But we will live to see the rest developed and the vision will be completed.”
Rosenfeld began advising the Burien City Council about the development of a town square in the mid-1990s, shortly after incorporation, and is “proud to have played a small part in it.”
Look at what the city has already as the result of the Town Square project, he observed. Ten years ago the site held the educational services building, an empty Gottschalk’s store, and a lot of parking.
Now there is a “wonderful” new city hall and King County Library building, a downtown park that is the center of many community activities, and a condo/retail complex “with gorgeous quality units.”
Everything that has happened in the past year is “just a bump in the road,” Rosenfeld added. “Now we can move forward. We’ll do more.”
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