Lender sues over $2.275 million loan on The Gallery condo project in ex-Greek church in Ann Arbor
Paula Gardner | AnnArbor.com
The building - falling into disrepair as it awaits demolition - had been planned as the site of a $67 million mixed-use, 11-story condo tower called The Gallery.
Huntington National Bank is suing North Main/Fourth Ventures LLC, the ownership entity led by Ann Arbor developer Michael Concannon; his business partner, Paul Sieben of Ohio; and 414 N. Main St. LLC, an entity led by Mel VanderBrug of Bloomfield Hills.
Also named parties in the lawsuit are H+M Demolition Co of Holland and Washtenaw County Treasurer Catherine McClary because of their lien positions on the property.
The lawsuit is the second of a two-part effort on behalf of the bank to pursue payment, Concannon said. He called the action heavy-handed.
“They can either go after the property or guarantors or both,” he said. “They’re choosing both.”
However, Concannon said, the national investment and development climates mean that banks “don’t want buildings back.”
While in years past, banks would move to take the asset, they’re now pursuing judgments against borrowers who miss payments.
In the case of the former Greek church, the lawsuit asks for repayment of a $2.275 million loan with more than $51,000 in interest accrued as of late August. The mortgage on the property, held by Sky Bank of Ohio, secured the loan.
Now, Concannon said, “I’m trying to negotiate a deal to buy the note and the mortgage.”
It’s a complicated effort, one that he’s waging to keep his vision for the property alive despite massive changes in real estate, development and the local housing market.
Paula Gardner | AnnArbor.com
Concannon’s LLC bought the property - which includes the former church, the adjacent parking lot and vacant property at 401 N. Fourth Ave. - in 2005 for $2.35 million.
He planned the 11-story high-rise facing North Main, with 95 condos, ground-floor retail space, a floor of offices and 213 underground parking spaces. A four-story building with retail and 18 apartments was planed for the Fourth Avenue property.
In 2007, Concannon sought investors as partners to keep the deal moving forward. More recently, Concannon said he’d been negotiating with the bank for construction financing while the lender had been extending the loan over the downturn.
“At some point those negotiations broke down because they were unwilling to extend the underlying land loan unless we put more money (into the deal),” he said.
Lending has been an issue across the U.S. for two years, longer in Michigan. The dynamics behind the Gallery deal have changed with the market: As the loan market slowly comes back, developers will have to bring more cash to the deal. Concannon estimates now needing 50 percent down.
“So the amount of capital required is substantially higher than it used to be,” he said.
Concannon’s experiencing similar issues on other projects in the region: The Village Marketplace in Saline couldn’t get construction financing as retailers pulled out of the deal due to their own financing concerns; the site plans just expired. And 5th/3rd Bank initiated foreclosure against 425 E. Washington, the former Ann Arbor Professional Building, where Concannon planned to build a student housing tower. West Towne condos on West Liberty near Maple Road stand partially built and unoccupied.
“It’s not easy,” he said. “Every time we think we have one piece put together, then something happens in the economy.”
At the site of the Gallery, the resolution for the investors and the bank may not be reached this year, if the lawsuit proceeds. A settlement conference is scheduled for Oct. 4 in front of Judge Melinda Morris.
The bank’s attorneys have asked the judge to appoint a receiver on the property in addition to starting the foreclosure, according to the filing.
In the meantime, Concannon said he’s continuing his 16-month effort to secure financing.
“As soon as we can close our intent is to demo the church immediately and construct the four-story building on Fourth Avenue,” he said. “We hope that will be sooner rather than later.”
More delays, he said, could permanently change that direction.
“If we don’t close on the the financing, we’re done,” he said. “It’s down to a point where it’s going to happen very, very quickly. Or it’s not.”