Federal regulators on late Friday closed Chicago-based Corus Bank, which holds a $115 million construction loan for the 42-story Spire condominium high-rise nearing completion in downtown Denver.
“It’s business as usual, from our perspective,” Randy Nichols, the owner and founder of Nichols Partnership, the developer of the496-unit project at 891 14th St., told me today.
“Its probably an insignificant event,” Nichols added, because the Spire is so close to be completed.
“It’s kind of like at this stage of the game, it would be like if Chase sold your home mortgage to Wells Fargo,” Nichols said. “Since we’re only a month or so away from getting our occupancy permits, the impact of the draw process against our construction loan is negligible. ”
Construction-loan drawn down
Although the original note is $115 million, he said they have drawn down about $95 to $100 million for the construction of the $175 million high-rise. The senior construction loan was provided by Corus Bank, with Colonnade Properties and Madison Capital Company providing mezzanine debt, along with Denver-based Fisher Capital providing key subordinate debt for the project, in January 2008.
The agreement with Corus requires it to continue to fund ongoing marketing expenses, and things such as the interest reserves, which they will be paid back by condo sales. About 90 condos have sold in the past 90 days. Nichols said he has been told that may make it the best-selling condo project in the nation during that time period.
Timing of Corus collapse could have been worse
“But once the construction stops and most of the building opens, most of the money (from the construction loan), will have been spent,” Nichols said. “(The failure of Corus) would have been a much bigger issue if it had occurred nine months ago, when a lot of construction remained to be funded. But at this stage of the game, it is pretty much a non-event.”
MB Financial Bank of Chicago has entered into an agreement to purchase Corus Bank and about $3 billion of its assets, mostly cash and marketable securities.
The Federal Deposit Insurance Corp., the receiver for the bank, plans to sell substantially all of the remaining assets of Corus, including many of its loans loans, within 30 days.
The loans, will be sold at a discount, but that probably will not help Nichols.
“Eventually, some other party will buy the loans below their full par value,” Nichols said. “In our case, they would be buying the full $115 million note, presumably at some discount. But the buyer, who is putting at risk a large sum of money, will be expecting some return. It will just like in the old RTC (Resolution Trust Corp.) days, when investors bought bank notes at discounts.”
Corus Bankshares held about $5.4 billion in real estate loans. It was one of the country’s biggest lenders on Florida condo projects, which have been one of the nation’s hot spots for foreclosures.
I asked Nichols if he could bid on his loan.
“We can certainly make an offer,” he replied. “But I think these notes are going to be sold as a group to a single buyer. The FDIC does not have enough staff to go and sell 90 different notes to 90 different individuals.”
And it’s too early to know how the FDIC will package the notes.
It could sell all of the notes in one package, for example, or it could create a package for its loans which are current.
“It’s too early to tell,” Nichols said. “It just happened.”
Hypo pulled the plug earlier
Corus stepped in as the lead bank in January 2008, after Hypo German-based Hypo Real Estate Capital, pulled the plug on about $160 million in financing in 2007, stopping construction on the project for several months. Nichols later suedc Hypo and they settled without disclosing the terms.
J.E. Dunn Construction is the general contractor on the Spire. The project is expected to receive a Leadership in Energy and Energy and Environmental Design designation, making it one of the largest LEED-certified condo projects in the U.S.
The majority of the units sold to date have been in the $350,000 to $400,000 range, with an average price of $360 per square foot, said Andy Hines, who heads sales for the Spire. Other units are priced from the low $200,000s to more than $1 million, he said. Sixty percent of the units will be priced below $400 per square foot, he said.
Mortgage broker Dan Brown, who is a “very, very small,” equity investors in the Spire, said he thinks that the project is gong to do fine, despite the government’s takeover of Corus.
“Spire is doing OK,” said Brown, principal of Spire Financial in Denver. “It is not performing( like the market did when the market was on fire) in 2007, but in 2009, it is the hottest selling building in the country. You would not shut down a building of that size that is so successful, relative to everything else. It’s in the government’s best interest to keep the Spire moving forward. It’s not necessarily a bad thing for the Spire that events took their course and Corus was taken over.”
Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.