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| The Southwest Corner of 44 Monroe |
VIZZDA—November 5th, 2013 — The already frothy
market for multi-family assets in Phoenix saw a new high water mark this week
with the sale of 44 Monroe, a 34-story “Class A” apartment building in the
Business Core area of downtown Phoenix. The sale price of $40m—while not in and
of itself that impressive—translates to an eye-poping $217,391 per unit for the
184 units conveying, easily the highest per unit cost in the Phoenix
Metropolitan Area.
The story of 44 Monroe is, in many ways, similar to the
trajectory of commercial real estate as an asset class in Phoenix since the
Financial Crises of 2008. The property was acquired in 2004 with help from a
$7m acquisition and development loan with the now-defunct Mortgages Limited,
Inc. The developers were able to re-financed that note with an additional
$10.63m debt with same, releasing the prior note and allowing for the
development to “go vertical” by mid-2006.
To facilitate the development of the project, the developers
secured an $86.829m new construction loan with Corus Bank, which supplanted the
Mortgages Limited note as senior lien. The structure topped out in the late summer
of 2007 and the project was completed by the fall of 2008 amid concerns that
the developer and lender were unable to meet their respective obligations. The
death of Scott Coles and the subsequent failure of Mortgages Limited in late
2008 set off a cascade of litigation involving, among many other properties, 44
Monroe.
Before the court-appointed receivers for Mortgages Limited
were able to negotiate either a restructuring or an exit from the
second-position mortgage, the first-position lienholder, Corus Bank, failed and
its $5.4B commercial loan portfolio was placed into FDIC receivership. The FDIC
pursued an unorthodox—but ultimately effective—strategy for managing the
distribution of assets: enlisting a newly formed entity comprised of executives
from Starwood Financial, TPG, WLR LeFrak and Perry Capital for a public-private
partnership.
Following a settlement between the prior developer and
investors in the second-position Mortgages Limited debt, the entity—ST
Residential—took 44 Monroe through the foreclosure process and set about
repositioning the asset as apartment units for rent, rather than condominiums
for sale. This week’s sale to Winthrop Realty Trust is part of a $246m
portfolio sale of four properties totaling 761 units and 24,987 ft2
of ground floor retail in California, Texas, Connecticut and Arizona. Winthrop
financed the acquisition with $150m new cross-collateralized debt with Keybank.
By:
Paul Dionne
Director of Analytics
Vizzda.com
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