The owners of Hartford’s Bushnell on the Park, located in the heart of downtown, have defaulted on a mortgage for part of the landmark property and are currently in the foreclosure process, court documents show.
Waterbury-based Bushnell Regency, which bought Bushnell on the Park in 2002 for $15.6 million, has failed to make payments from November 2008 to at least July 7 on a mortgage for “129 condominium units and 166 parking spaces in the larger 180-unit complex,” according to a complaint filed in Hartford court.
As of May 31, Bushnell Regency owed at least $14.5 million, the complaint said.
The property under litigation, recognizable by its horseshoe-shaped residential building, is used for rental apartments and office space.
Martin Carlin, who said he was an owner of Bushnell Regency, said the company has intentionally stopped making payments on the property because it is trying to renegotiate the mortgage. Carlin said the company has been trying to refinance for months, but its been nearly impossible because the loan has been securitized and they can’t find anyone who has the authority to rework the loan.
Securitization is the process of pooling and then packaging various types of debt, such as mortgages, and then selling it into a secondary market, where there could be more than a half dozen entities that have a say or interest in the loan.
As a result borrowers, such as Bushnell Regency, oftentimes don’t know the identity of the institutions that hold their mortgages, making it difficult to renegotiate the loan.
At the same time, securities often have strict terms or rules that prevent lenders from reworking the loan until there is a default.
Industry experts said that borrowers sometimes will intentionally stop making payments in order to get someone at the negotiating table.
“We hope to be able to refinance the loan,” said Carlin, who added that the Bushnell Regency has enough cash flow to pay the current mortgage.
Wells Fargo Bank is listed as the plaintiff in the case and is acting as a “trustee” for registered holders of GMAC Commercial Mortgage Securities. CW Capital Asset Management is listed as a special servicer of the security.
The plaintiffs have been attempting to put the property in receivership since June, court records show.
Numerous calls and e-mails to Bushnell Regency’s lawyer Richard Weinstein were not returned. David Reif, a Hartford lawyer representing the plaintiffs, declined to comment on the story.
Bushnell Regency and the company’s manager Michael Jaffe, along with the Bushnell on the Park Condominium Association, are all listed as defendants.
The Bushnell on the Park property, constructed in 1978, was once owned by the scandal-plagued Colonial Realty, but in the wake of that company’s collapse in the early 1990s, it was sold to Aspen Real Estate for $2.2 million. In 2002, Bushnell Regency bought the property for $15.6 million, and took out a $12.7 million mortgage, city records show.
In 2007, the Hartford Business Journal reported that Bushnell Regency was looking to sell the property and some brokers estimated the selling price at a minimum of $25 to $30 million.
According to an appraisal done by Cushman & Wakefield in February, the property under litigation was valued at $8.9 million, substantially less than the $14.5 million debt the plaintiffs say is owed, the complaint said.
The forecasted value of the property in 2011 is about $11 million, the appraisal said.
Even though the company has failed to make its debt payments, the complaint says “Bushnell Regency can continue to collect monthly rents from the condo units” for an estimated monthly revenue of $169,747. Monthly debt payments are supposed to be $75,745, court records show.
According to the Cushman & Wakefield appraisal, the occupancy rate for the residential component of the property was 81 percent as of Feb. 11, compared with historical occupancy levels in the high 90s.
Jim Tancredi, a partner in Hartford law firm Day Pitney, said there has always been a general strategy among borrowers who are looking to renegotiate a commercial mortgage that has been securitized, to default on the loan in order to encourage a lender to talk to them.
“It brings a sense of urgency to the matter,” Tancredi said.
When a commercial loan is securitized, borrowers will many times interact with a “master” servicer who collects payments on the mortgage, but they can’t change the terms on the loan. That job is left to a “special” servicer, but many times their hands are tied until there is a default. Carlin said trying to renegotiate the deal has been difficult.
“It’s virtually like talking to a machine,” Carlin said. “We couldn’t talk to anyone.”