Wednesday, Aug. 22, 2007

Rockville condominium conversion to resume

Lender struggles with market collapse

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CBRE Realty Finance of Hartford, Conn., plans to revive the Monterey condominium conversion at the former Pavilion apartments in Rockville.

The conversion has been stalled since the company foreclosed on the project in May when the developer defaulted on its loan.

CBRE’s struggles with the Monterey and a second conversion project in Towson are a sign of how the condominium collapse locally and nationally has begun to hurt lenders. CBRE’s stock has been rocked by investors after the company reported a second-quarter net loss of $4.6 million stemming from a $7.8 million non-cash impairment charge on the two foreclosed properties.

The company announced plans to resume sales of Monterey condominium units immediately and to pump $17 million into the conversion project when it filed its quarterly earnings report with the U.S. Securities and Exchange Commission on Aug. 14.

CBRE said it has resolved issues raised by Montgomery County housing agencies, which had claimed a right of first refusal to purchase the Monterey and had proposed that a proportion of the completed condominium units be sold below market.

‘‘The county had claimed a right of first refusal ... but because this was a foreclosure sale and not a voluntary arrangement between two parties, we argued that this would not apply,” said Susan Orr, CBRE’s legal counsel.

She said the firm expects a certificate of compliance from the county next week, once the deadline passes for any tenant’s organization to stake a first-refusal claim.

The county’s Housing Opportunities Commission and Department of Housing and Community Affairs maintain that they have a right of first refusal, but neither plans to act on it, said Tedi Osias, director of legislative and public affairs for the commission. The two agencies had been exploring the option and had discussed the possibility of a set-aside of a number of below-market units for sale at the project, which over the years had developed into a naturally occurring housing complex for seniors.

‘‘In the final analysis, we decided not to go ahead to exercise our right of first refusal,” Osias said.

Although the county claim has been resolved, it has delayed CBRE from resuming development and sales efforts and implementing its intended business plan for the project. In May, the company foreclosed on the Monterey, a 434-unit condominium conversion project, and Rodgers Forge, a 508-unit condominium conversion project in Towson, after Triton Real Estate Partners, the Annapolis developer, defaulted on its debt payments.

Triton’s collapse was part of the popping of the region’s condominium development bubble, which has seen almost 20,000 condominium units removed from the pipeline during the past 12 months, either by canceled conversions or shifts in new construction to rental units, according to an analysis of area condominium trends by Delta Associates, a real estate research and consulting firm, and the Mayhood Co., a condominium marketing company, both in Alexandria, Va.

The foreclosures contributed to a collapse in CBRE shares, which fell as low as $3.52 on Aug. 7, when it announced its quarterly earnings and said it would suspend new investments because of the instability in the credit markets. The firm’s shares had reached a 52-week high of $18.39 on Dec. 18.

CBRE faces its own credit crunch because two creditors have requested additional equity or refinancing in connection with their lines of credit.

CBRE bought the Monterey in a foreclosure auction for $100, plus assumption of $150 million in debt, and has reported its net carrying value as $31.7 million. The company took control of Rodgers Forge with a winning bid of $1 million, plus assumption of $36.5 million in debt and reported its net carrying value as $22.9 million.

This report originally appeared in The Business Gazette.