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Apartment REP Blog
May 27

Written by: Apartment REP
5/27/2010 6:45 AM 

Written by David Bracken | TRIANGLE NEWS & OBSERVER

When Crosland sold the Apartments at Meadowmont in Chapel Hill last month for an eye-popping $37 million, it raised speculation about the Charlotte developer's financial situation.

Crosland, like many real estate companies, has seen several of its projects run into trouble in recent months as lending has dried up and property values for all types of commercial real estate have fallen.

Construction on two projects in Chapel Hill has been stalled for months, and the company's construction arm, Crosland Contracting, has faced liens and lawsuits in Wake and Orange counties alleging that it hasn't paid for hundreds of thousands of dollars' worth of invoices.

Crosland even filed a lien and a lawsuit against an entity it formed to develop one of the stalled Chapel Hill projects.

CEO and Chairman Todd Mansfield said Crosland's lender on one of the Chapel Hill projects, a 123-unit apartment complex called The Residences at Chapel Hill North, halted funding of the project midstream.

"We are currently working on resolution of the liens to coincide with the restart of construction," Mansfield said.

His answers came in a statement he issued in response to a list of questions. Crosland officials had declined a request for an interview.

Crosland was financing the project with a $16 million loan from RBC Bank, according to property records.

Mansfield gave no time frame for when construction might resume on the Chapel Hill projects, but completion of Chapel Hill North is contingent on resolving the issues with the lender or finding a new one.

As for other liens filed against Crosland projects in the Triangle, Mansfield said all but one has been resolved. Mansfield said the company expects to open its new 342-unit apartment complex in Durham, Trinity Commons, this year, ahead of schedule.

Crosland is considered one of the Southeast's top development companies, and its struggles say much about the depths of the housing downturn.

Real estate developers that built projects in recent years are finding it difficult and expensive to replace their construction loans with more permanent financing.

In the case of new apartment buildings, many developers are finding that the value of their property has declined to the point where their construction loans are higher than any permanent financing they can put on the property.

The developers' option is to put in more equity to make up the difference, or get the lender to extend the maturity date of the construction loan.

Jim Scofield, CEO of the Raleigh real estate company Apartment REP, said most developers never expected to have to put in more cash when their construction loans came due.

"Development projects are typically conceived where you don't put in equity at permanent financing time," he said. "If anything, they're hoping you can pull some more equity out of it."

Crosland's portfolio includes apartments, shopping centers and office and industrial space throughout the Southeast. In the Triangle, the company has 1,800 existing and proposed residential units and more than 600,000 square feet of retail space.

Tony Plath, a banking professor at UNC Charlotte, said that diversity and the company's strong presence in North Carolina - which didn't experience a speculative bubble like some markets - mean Crosland is likely much healthier than most of its competitors.

Crosland could benefit from the market turmoil as smaller developers are driven out of business, Plath said.

"Their problem is not overbuilding and over-leverage," he said. "It's just become a more difficult industry in which to gain financing and repay what you've already got."

Charlotte Observer staff writer Kerry Hall Singe contributed to this report.

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