When Flaherty & Collins pitched its 28-story luxury apartment building at the site of the former Market Square Arena site next to the City-County Building, it pegged construction costs at $81 million, a little more than a quarter of which the City of Indianapolis agreed to pay from the downtown TIF fund to subsidize shortly after which Deputy Mayor Deron Kintner announced he was leaving his economic development job with the City to join the developer as its general counsel. Now those constructions costs have ballooned to $121 million according to the IBJ. That' a 50% price increase!
What lender in their right mind would lend that much money to a developer to build a high-rise building costing that much when it is inconceivable that it will ever generate anywhere close to the amount of income it will need from apartment and ground-floor commercial tenants to pay debt service on the building? Flaherty & Collins had a spectacular flop on its 48-story, 210 Trade Tower it built in Charlotte, North Carolina that wound up in a more than $52 million Chapter 7 bankruptcy. That project left Minneapolis-based U.S. Bank holding the bag on $37.3 million in unpaid debt. Indianapolis-based House Investments sank $6 million into the project for a stake in it. I don't know how anyone can crunch the numbers and assume that $1,300 to $2,400 a month rents for 300 apartments in a costly high-rise building can come close to covering that big of a debt load, even if a Whole Foods store occupies the ground floor space.
6 comments:
The developers on projects like this build them with the full knowledge they will file bankruptcy and walk away within a few years after they've pocketed millions in development fees. Find out who is loaning these grifters the money for this project. They should be fired for gross incompetence and malfeasance.
Gosh, like others I am getting to sound like a broken record but Gary you are right again and this Market Square Tower crony deal will no doubt fail as did its short-lived predecessor in 2006.
The vistas from this Flaherty & Collins ivory tower will not all be gold standard and of those units that do feature views of the Circle... well, so what? This ain't downtown Chicago, downtown Atlanta, or premium central NYC.
Public officials from our corrupt mayor to his minority quota talent who depart for greener (read: way higher salaries) pastures should be held legally accountable when the P3 and phony government-private partnerships fail.
I think you're spot on, Gary, and Anon 1:43. How are the private lenders getting away with making such risky investments? Sounds a lot like the raw deal received by all those toll road lease investors.
I've been in the building design and construction business a long time. How in the hell anyone blows even an initial cost estimate by 50% is beyond me. Plus I heard they are reducing the height of this "skyscraper" by 100 feet (original proposed height was 300 feet) - essentially meaning a significant reduction in scope of work. Developers always inflate construction cost estimates and project scopes to land a bigger subsidy - but I thought that was negotiated long ago. Something else is afoot here. Is F&C angling for a bigger city subsidy?
Let's place bets on whether Indianapolis or Carmel defaults first. I am an appraiser and I do not even need to fire up basic Excel for this one. Classic developer bait and switch. They probably read Donald "bankruptcy is a way of life" Trumps books.
Can The City divert some of the revenue from Broad Ripple bike lanes and The Cricket Field, Regional Operations Center, Fieldhouse we get all those events at downtown, and Stadium parking and concession revenue from our taxPAYER funded football stadium, as well as parking revenue from the spots those goofy electric cars block downtown to pay for this facility?
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