Foreclosure is stalking some of Hartford's biggest downtown properties
December 22, 2009
Foreclosure fever is gripping downtown Hartford. First, it was the iconic Bushnell on the Park, the curvy condominium project built in 1969 overlooking Bushnell Park. Next, two major office towers downtown, Metro Center One and CityPlace II, both owned by the mighty Northland Investment Corp., fell under foreclosure actions.
Neither Bridgeport nor New Haven are experiencing similar crashes in their downtown real estate markets; in fact officials in both those cities say things are on the upswing. So what's different in Hartford? Steve Witten, a senior director at the New Haven office of Marcus & Millichap, the nation's largest commercial real estate investment services firm, says the Hartford market is just plain bad.
"There are thousands of multi-family units in Hartford in trouble, impacted by the current [economic] issues," said Witten. "You know the old saying 'A rising tide raises all boats?' Unfortunately the opposite is also true."
Wells Fargo Bank Minnesota filed for foreclosure in April against Bushnell Regency, LLC, based in Waterbury, which bought Bushnell on the Park in 2002 for $15.6 million. Bushnell on the Park Condominium Association, and Michael Jaffe of Montvale, N.J., manager of Bushnell Regency, were also named as defendants.
Bushnell Regency, which owns 129 of the building's 180 units and rents them out, controls the condominium association, creating a "very odd situation," for the independent unit owners, according to Bill Breetz, president and executive director of the Connecticut Urban Legal Initiative, Inc., and one of the leading experts on condominium law in the state.
Breetz, who does not represent the independent unit owners but who has been consulted by them, says their standing in the foreclosure is far from clear, as the association never entered an appearance through a lawyer in the case.
"What I do know is the independent unit owners generally feel the level of maintenance at the property is considerably less than it should be, but they have no authority to control the association because it's controlled by Bushnell Regency," said Breetz.
A Superior Court judge granted a judgment of strict foreclosure on Nov. 9 in the case, listing a total debt of $15.2 million on an appraised fair market value of $8.8 million for the building. Chozick Realty tried to sell Bushnell on the Park for most of 2008, hoping to get $25 million to $30 million, but no one even entered a bid and it was taken off the market late the same year.
Breetz explains that strict foreclosure, unique to Connecticut, is used in cases where the property is worth less than what's owed on it. Each of the defendants in the case, starting with Bushnell Regency on Jan. 11 and continuing for three consecutive days, will have the opportunity to pay off the debt in full and take control of the building.
"If [Bushnell Regency doesn't] pay off, they're out, they're done, their interest abolished by virtue of court order," said Breetz. "Then the next defendant has the right. If they don't pay off, then they're out. So you go through this process. In some cases there could be a dozen [defendants] but in this case there are only three."
If all three defendants fail to come up with the $15.2 million needed to buy the building, it reverts back to the mortgage holders. It's not clear who that is because the loan has been "securitized," or sold into a secondary market where a variety of lenders could be involved. Wells Fargo is simply the trustee for the loan, representing the interests of the lenders.
In August, a principal with Bushnell Regency told the Hartford Business Journal they had intentionally stopped making payments in November 2008 as part of a strategy to force the lenders to renegotiate the mortgage.
Steve Witten said that's not an uncommon strategy for commercial investors to take when they want to modify the terms of their mortgage.
"The only way you get your lender's attention is to stop paying," said Witten. "When you stop paying you get their attention really quickly."
But clearly the strategy doesn't always work, as Bushnell Regency stares down the barrel of a strict foreclosure.
Northland Investment Corp. famously holds more downtown property in Hartford than anyone else, with a portfolio that includes: CityPlace II and Goodwin Square on Asylum Street; Hartford 21 on Trumbull Street; Metro Center One on Church Street; The Crosthwaite Building on Allyn Street; and The Standard Building on Trumbull Street.
In the past three months, however, both CityPlace II and Metro Center One office towers, each at 294,000 square feet, have been the subjects of foreclosure actions. Bank of America, trustee for the mortgage holders, filed for foreclosure on Metro Center in September, and three months later, on Dec. 4, Asylum Street LLC filed for foreclosure on City Place II.
Northland took out $25 million loans on each of the buildings, according to court documents, falling behind millions of dollars on payments.
The company issued a vague, boiler-plate statement in response to press inquiries, saying through spokeswoman Mary Coursey, "Like most commercial real estate borrowers, the lack of liquidity is making refinancing at maturity [of the mortgages] problematic. We are negotiating with the lenders to produce an extension that will give us time to get a new loan and a modification of the interest rate."
Northland principal Larry Gottesdiener has had little to say, telling the Hartford Courant only that his company remains financially strong and committed to downtown as a "24-hour neighborhood" where people would "live, work, eat, drink, shop and play." Northland is a major player in commercial real estate on the East Coast and in the South, with holdings totaling some 15 million square feet of space worth $1.7 billion, according to the company's Web site.
And that's why Witten believes Northland will emerge relatively unscathed from the foreclosure action.
"Northland is not a new firm, they're an experienced, long-term operator with significant holdings in many states in the country," said Witten. "They know how to operate the properties. I would assume they're quite viable."
Witten sees Northland as a "victim of the times," a solid company blind-sided by a softening real estate market. He said market conditions in Hartford have made it particularly difficult for the company to fill its showpiece Hartford 21 condominium tower. Not hard to believe, given the 40 percent vacancy rate for downtown retail spaces recently documented by the city's development department.
In the Courant, Northland made the same argument about the foreclosure on CityPlace II being a negotiating tactic as Bushnell Regency made about its default on the loan for Bushnell on the Park.
But Don Eversley, director of economic development for Bridgeport, said the renegotiating could be tough, especially if the banks involved are smaller banks that could be badly hurt by deals as big as Northland's going south.
"At some point they run into a wall," said Eversley. "Lenders may decide, 'We gave you six months, nine months, 12 months and we got to shut it down or the bank is going to go down.' Someone like Northland can take a bank out."
Even Witten wonders if Northland drank the Hartford Kool-Aid.
"Was Northland more bullish on Hartford than they should have been?" he says. "Hartford made representations about its ability to have downtown Hartford become a 24/7 environment like New Haven. If Hartford had Yale it would be doing very differently. If [New Haven] didn't have Yale we'd close up the city. Seriously, there'd be no reason to be here."