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Unfinished Microtel Inn & Suites Owner, Jim Sayed, Learns
What Happens When the His Bank Lender Fails

By Gary T. Pakulski, The Blade, Toledo, OhioMcClatchy-Tribune Regional News

Jul. 26, 2009--When developer Jim Sayed called his Atlanta lender to ask about the first installment on a construction loan for a hotel in Maumee, he received startling news.

The bank had been seized by the Federal Deposit Insurance Corp. three days earlier, he was told. And his loan was on hold.

"It made the skin on the back of my neck crawl," recalled Mr. Sayed, 42.

Now, the unfinished Microtel Inn & Suites that he launched seven months ago protrudes from the ground at Tollgate Drive and Lance Pointe Road as an ugly reminder of the credit crisis and financial turmoil that have stalled commercial construction projects across the nation.

Along the Las Vegas strip, partially finished casinos and hotels include Boyd Gaming's 5,000-room Echelon project and the Fontainebleau, analysts said.

In New York City, more than 140 construction projects remain uncompleted.

And in Miami, fewer than half of the units in many newly completed condominium high-rises are sold, according to real estate firm Reis Inc.

Last week, there was fresh evidence that the commercial and residential construction sector may not have hit bottom. The American Institute of Architects said its architecture billing index, an indicator of future construction spending, recorded a sharp drop in June from May.

"Architecture firms are struggling and concerned that construction market conditions will not even improve as soon as next year," organization officials said.

Northwest Ohio and southeast Michigan have not escaped the crunch at the heart of problems in the commercial property sector, said Harlan Reichle, of CB Richard Ellis/Reichle Klein.

"There's certainly a problem out there," he said.

His firm, which is the largest commercial realty agency in metro Toledo, is seeing a "huge increase" in the number of industrial, office, and retail properties seized by lenders. Increasingly, the firm is being asked to assist with management and sale of the properties.

"We see more of these on the horizon in the next 12 to 24 months," Mr. Reichle said.

Mounting casualties

The local situation is not as dire as that of some large cities because fewer billion-dollar projects are built here, so stalled projects are smaller.

And fewer buildings are constructed on "speculation" -- that is, built without a ready buyer.

Still, casualties of the commercial property bust are beginning to accumulate.

Timberstone Group Inc. in Springfield Township was among the region's busiest and most aggressive developers of retail sites earlier this decade. Executives had a reputation for not shying away from high-quality sites that commanded top dollar.

Adjacent to Westfield Franklin Park, it built Talmadge Town Center. The firm and its partners purchased and renovated DeVeaux Village in West Toledo and Chesterfield Plaza in Maumee. It had a major piece of the Bartley Lofts residential project in downtown Toledo.

But now many of the firm's retail properties are in foreclosure, and phones have been disconnected at its main offices in Wolf Creek Park in Springfield Township and at a satellite office in Fort Myers, Fla.

Meanwhile, building officials in some communities in the region say they are encountering more situations in which developers and owners file initial paperwork for hotels and other commercial projects but never follow through.

Among stalled projects is the planned regional sales and marketing offices of billboard giant Lamar Advertising Co.

Motorists who travel into Toledo on the Anthony Wayne Trail from South Toledo and the city's southern suburbs pass a 109-year-old building at 116 South Erie St. that for years stood as an unsightly eyesore at one of the most important gateways to the city.

Then, Lamar bought the two-story structure, applied fresh paint, and revealed last summer that it would spend about $1.5 million for renovations to create a local headquarters building. The city of Toledo agreed in September to provide property tax concessions.

But work on the project stopped months ago.

"We've put the project on hold for now," explained Greg Churilla, vice president and general manager for Lamar in Toledo.

Roofing work and minor repairs are planned to protect the building from winter weather.

Renovations won't begin until the economy improves.

"We are going to finish the project at some point," Mr. Churilla said.

"But companywide, because of the economy, we are watching our expenses at this point."

A lack of activity

The Isaac Group in Bryan owns 300 acres surrounding the three-year-old Shops at Fallen Timbers in Maumee and has plans to develop retail and office buildings on the site.

But there has been no activity on the property recently.

"The downturn in the economy has hurt all developers on a local as well as a national basis," said Zac Isaac, executive vice president. "We are hoping for better times in the future with regard to the retail world."

'Nightmare scenario'

Mr. Sayed, who planned to build the Microtel in Maumee, calls his experience a "nightmare scenario."

His family-owned development firm previously built small shopping centers and custom homes.

The $6 million 85-room Microtel was to be its first hotel.

The budget lodging facility was to be built by the family's construction firm, Landmark Development LLC.

To finance the four-story hotel, Mr. Sayed's Tollgate Ventures LLC turned to a bank in Decatur, Ga., that had financed other motels and hotels. Haven Trust Bank was formed in 2000 by a group of Indian-American businessmen.

Before its failure, it had been a success story. It had $572 million in assets and last year was on Entrepreneur magazine's "Hot 100" list of the nation's fastest-growing businesses.

But by the time the bank closed on Dec. 12, 11 percent of its loan portfolio was in default, according to news reports. Assets were taken over by Branch Banking & Trust of Winston-Salem, N.C.

Mr. Sayed said he knew nothing of the looming problems when he closed on a loan with Haven Trust on Nov. 17. Three days later, the bank filed a customary $4.5 million mortgage against the property at the office of the Lucas County recorder.

On Nov. 21, in the same office, Mr. Sayed gave notice that he was commencing construction. Completion was expected by April or May, 2009.

"We wanted to beat winter as much as we could," he explained last week.

A month later, with work under way, Mr. Sayed called Haven Trust to receive the loan's first installment, known as a "draw."

After receiving word of the shutdown, he frantically tried to reach the bank executive with whom he had dealt. Dozens of calls later he reached an official responsible for his loan, only to be told that the loan was on hold pending a 10-day "cooling-off period."

Two weeks came and went. "It was just before Christmas and I was twisting all through the holiday season," Mr. Sayed said.

Finally, in mid-January, he was told that the construction loan would be "repudiated." Translation: It was being withdrawn.

Bogged down

A representative of Branch Banking & Trust said the hotel loan was not among those it acquired when it took over certain assets of Haven Trust. That loan remained with the FDIC, spokesman A.C. McGraw said.

Branch Banking & Trust, known as BB&T, assumed only loans backed by cash, such as savings and certificates of deposit.

An FDIC representative said the federal agency is prohibited by privacy laws from commenting on individual customers.

When a bank fails, loans and other assets that are not immediately sold are placed in a receivership, spokesman David Barr said. A thorough review is conducted to decide whether to continue funding loans, he added. Developers typically are encouraged to seek alternative financing, Mr. Barr said.

Tollgate Ventures has shelled out $1.5 million to contractors for work including excavation and installation of a foundation.

Despite $1.7 million in backing from the Small Business Administration for the project, Mr. Sayed has been unable to nail down alternative financing.

The project is too small for large banks and too big for small banks, he said. Midsized institutions that dominate the Toledo market have significantly scaled back lending for projects such as his, he added.

It doesn't help either that the project is under way.

He is hopeful that representatives will be able to obtain financing from lenders in the Chicago area.

But he admits frustration.

"I get people that have interest, but everybody is afraid to pull the trigger," he said. "I absolutely have no control. "I'm ready to go vertical tomorrow if somebody stepped up."

Contact Gary Pakulski at: gpakulski@theblade.com or 419-724-6082.

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To see more of The Blade, or to subscribe to the newspaper, go to http://www.toledoblade.com.

Copyright (c) 2009, The Blade, Toledo, Ohio

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