Market changes put LCOR project in limbo
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Pressed for time and money, a development executive at LCOR Inc. recently summed up his company”™s dilemma before the White Plains Common Council. He might have been speaking for many developers coping with the radically changed world of construction financing.
“The project we have doesn”™t sit comfortably with the capital markets that we have today,” Senior Vice President Peter T. Gilpatric said of LCOR”™s proposed 537-unit high-rise apartment complex with retail space at 55 Bank St.
The Common Council approved the project more than a year ago, but was being asked to extend the timetable for construction and the developer”™s schedule of installment payments to the city that total $15.5 million. After much discussion, council members approved the change of contract while worrying that the developer might not be able to deliver a $5 million payment whose due date already had been pushed back from June to September.    Â
“We”™re trying to position the project in its best light so we can get this project going and as quickly as possible,” said Gilpatric, a frequent shuttler between his company”™s midtown Manhattan office and City Hall in White Plains. LCOR already has invested $10 million in the project “and I know I have a project I can”™t finance,” he said. Â
Headquartered in Berwyn, Pa., LCOR is a developer of large-scale residential, commercial and mixed-use properties, with more than 20,000 residential units and 16 million square feet of commercial space developed to date. The company plans to build a hotel on adjacent property in the second phase of its Bank Street project. Its capital partner in that and other projects is Lehman Brothers.
Yet no lender has been willing to finance the $250 million White Plains project as proposed. LCOR”™s design team in the next five months must come up with a revised site plan to build the apartments in phases and make the project less expensive and more attractive to lenders.
“The capital market now does not fund $250 million increments,” LCOR attorney William Null said. “The change in the capital market will throw us back into redesign in order to go forward.”
LCOR is not the only developer facing that dilemma. White Plains Planning Commissioner Susan Habel said two other affordable-housing developers are expected to seek contract revisions from the Common Council because of similar financing obstacles.
At Inspection and Valuation International Inc. in White Plains, “We see that every day,” IVI President Carl deStefani said of LCOR”™s predicament. “It”™s a different environment out there. Almost all the (lending) institutions are retrenching. It”™s very difficult to borrow. A lot of developers right now are having trouble getting financing.”
Among its range of consulting services for the real estate market, IVI provides project management oversight and construction loan administration for lenders on commercial projects ranging from more than $1 billion in cost to less than $2 million. Most of those clients are institutional lenders and their numbers are shrinking.
“Before everything hit the fan, a couple years ago we had close to 200 properties around the country” under management, deStefani said. “Right now our business is down in that sector by at least 20 percent.” IVI had 190 employees about a year ago, but has since let go about 20 percent of its staff, deStefani said. Â Â Â Â Â Â Â Â Â
While its construction-sector work is down, lenders”™ demand for IVI”™s real estate workout services for properties where borrowers verge on default is slowly increasing in Westchester County and beyond, he said. Some of those financially weak properties are suburban condominium developments either partially or fully completed. “You have a number of developers who are trying to convert them to apartments to see if the economics work out,” deStefanis said. “It”™s not an easy conversion.”
“We don”™t see any asset sector that”™s strong. Whether it be hospitality, retail, office, there”™s nothing that”™s the flavor of the month. We just see a general slowdown.”
“We expect the slowdown to continue throughout next year,” deStefanis said. “We”™re looking to 2010” for a recovery.