Centerpoint Towers

Feb. 21, 2011

Transcript:

Ted Simons: Good evening and welcome to "Horizon." I'm Ted Simons. The Centerpoint condominium towers in downtown Tempe have finally been sold. Construction started in 2005 and ended three years later, when the lender, mortgages limited, filed for bankruptcy. The partially completed towers have been vacant ever since. But on Friday, it was announced that the towers have a new owner, and a fresh start. Here to talk about the deal is Mark Winkelman, chief operating officer for M.L. manager, the company that was responsible for finding a buyer. Good to see you again.

Mark Winkelman: Much happier times than last time I saw you.

Ted Simons: I told you we'd bring you back with better news and we got you here with better news. Who are the new owners?

Mark Winkelman: It's the same guys as last time. ZAREMBA, a national company based out of Cleveland, Ohio. They do retail and multifamily and they've had some projects here in town and had been working on Centerpoint, they say, for two years.

Ted Simons: What was the sale price?

Mark Winkelman: $30 million. The price did not change from last time.

Ted Simons: It was the group that had a deal pretty much in place the last time.

Mark Winkelman: We were ready to close with them the first week in October, the money had been sent and the documents signed and ready to go but then it didn't happen.

Ted Simons: We'll get to that hitch in a second, but back to what this deal, the particulars, when was this deal done?

Mark Winkelman: Done in terms of --

Ted Simons: Finalized.

Mark Winkelman: Friday afternoon.

Ted Simons: So that's it --

Mark Winkelman: The title company was -- there were so many documents and she said if we don't get this wrapped up and signed, I'll never get these 100 documents -- or whatever it was -- signed. That was about 4:00 Friday afternoon.

Ted Simons: OK, back to the hitch. Between the time ZAREMBA thought the deal was done and then we had the problem and Friday, were others interested? Were there serious offers from other people?

Mark Winkelman: I was deluged with phone calls after it became known that the sale be hadn't gone forward. But that typically happens on a high profile project, but what normally happens is something happened to the buyer, they lost financing, they found something they couldn't deal with, or there were a problem that prevented them from performing. That wasn't the case here. Everybody would call up and say, we're ready to go and we'd like to buy this and you're polite to people and we needed to sell this, but after a while, so many of these phone call, look guys, we had a buyer that had gone through the due diligence and $30 million cash ready to close. That wasn't enough money to do it. How much more do you guys have? And then they would kind of hem and haw and, they were thinking less.

Ted Simons: Let's now get to the hitch and what we thought was the deal last time, we thought we had a deal with the same group, what happened?

Mark Winkelman: Well, as you recall, last time, it broke down because we had a number of subcontractors and suppliers that didn't get paid and there were a lot of people that lost money and that's one group of them and they were trying to say, we have priority and we deserve to be paid. The title company has -- as they typically do will ensure over that sort of thing and we went to the closing, thinking we would be able to give the buyer an insurance policy that they got it free and clear of the liens and, the 11th hour, the title company changed their minds. And we had to do is figure out how to solve that problem and this was -- I've been in the real estate business 27, 28 years, I don't think I've ever worked on a administer complicated deal than this one, that ultimately got done. We had to figure out a way to bridge the gap and we ended up -- instead of fighting with the lien holders, it was an issue of is our loan in first place or their liens in first place? Instead of fighting, we bought their positions. They asserted liens with attorneys fees in excess of $30 million. We were going to win or they were. We bought their position, and negotiated a price. I forget how many -- 20-some assignments of those rights and September up an entity to hold -- set up an entity to hold it. And title -- since the original loan was done and last summer and we'll take those policies and we've informed the title come we intent to collect and we've shown damages and intend to get the money back at the closing that the investors didn't get and this is a bit strange. A $30 million deal, and our investors got zero money at closing on Friday.

Ted Simons: I was going to say -- let's ask about that, as far as what this sale means to investors, what does it mean?

Mark Winkelman: It's the largest asset that mortgages unlimited had. A high-profile project and it's important, it was 15% of the overall portfolio but for the specific investors in this, this is why it's so difficult and the structure so complex, they literally are not getting any money at closing. We had other obligations that had to be paid off. Loans and closing costs and unpaid real estate taxes, and so when it comes, as the water fall, when we paid the money for the mechanic lien holders, there's no money left. We had to go to court to get approval and a handful showed up and there's well over 1,000 investors in this deal and you're going to sell this for $30 million and we get zero? What's up. We had to explain the issues and we had an army of lawyers look at this and we're -- not saying it's a sure thing, but highly confident we'll get the money back through the policies and we're going to have to fight for it.

Ted Simons: I was going to say, it's a court case waiting to happen isn't it?

Mark Winkelman: It is and part of what the investors said was, alright if we have to take it on the come, we have to make sure there's new money to fight the war and there's $3 million held out of the proceeds, put into a separate account to make sure we have enough money to fight the legal battle to get the money back from the title insurance company.

Ted Simons: That battle is about to rage, but those towers now are off the books.

Mark Winkelman: Yes, they're somebody else's opportunity.

Ted Simons: Let's talk about them quickly, what these towers are. How much is needed to complete these things from what you understand?

Mark Winkelman: Good question. I don't know if I ever asked ZAREMBA specifically, we had so many people look at it. The estimates as low as $35 million and as high as $50 million, $60 million. Somewhere in between. Still a lot of work to be done.

Ted Simons: And a lot of work, you were mentioning this earlier, there are areas, common areas where is it looks like a whole bunch needs to be done. Then you go up a elevator and walk into a units and it's pristine, it's beautiful.

Mark Winkelman: It looks like somebody could be living in them. That's just the staging and construction, but right now all the outside looks like a construction site. But workers, I'm told, are on the site today and they've got a tight time frame, they intend to have the 22 story building open in time for the fall semester at ASU this year.

Ted Simons: And seems to be the target, student housing, luxury student housing, I guess.

Mark Winkelman: It is nice. Nicer than what I lived in as a college student.

Ted Simons: No kidding. How many stories on each building?

Mark Winkelman: 22 on one and 30 on the other.

Ted Simons: How many units overall?

Mark Winkelman: Roughly 380.

Ted Simons: Does this deal, and is it deal unique in and of itself or show that things might be -- the battleship could be turning a little bit as far as real estate in Arizona?

Mark Winkelman: Well, you know, people like to look at -- point at this condo thing and look at all of these ill-designed projects. What you've seen, one area of the market that's active is multifamily and that's apartments and condominium projects and people say if you're priced right, people will rent them or buy them and we had $135 million as a loan, the original developer claims to have $20 million, $25 million additional of their own money and just sold it for $30 million. If you put another $40 million, at $70 million -- that's half what it was originally going to cost so the rents can be less, the sales price if they ultimately sell it can be less. I think it's a matter of -- I honestly don't think we had too many condominium projects, probably too many planned but the ones out of the ground was caught up in the meltdown of the economy and real estate market.

Ted Simons: From where you sit, real quickly, last question; are these the kinds of projects that are rentals, most seem to be rentals that could become condos at a later date?

Mark Winkelman: Absolutely. They were designed and built as condos and that's the business strategy a lot of these folks, we'll rent them now and get some income and when things stabilize you probably won't see them selling for the prices -- these were going to sell for $700 and $800 a foot, I don't think you'll hit that. But you may be able to sell them and a lot of folks, that's their exit strategy. Time will tell what ZAREMBA chooses to do.

Ted Simons: Alright, well Mark congratulations, as I mentioned, we were going to get you back on here when it sold, and it did.

Mark Winkelman: Thanks very much, I appreciate.