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Detroitman
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Username: Detroitman

Post Number: 1008
Registered: 06-2004
Posted on Wednesday, October 04, 2006 - 1:44 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

Detroit DDA approves takeover of three Harmonie Park buildings in foreclosure

By Robert Ankeny

1:22 pm, October 4, 2006

Detroit’s Downtown Development Authority on Wednesday approved taking control of three Harmonie Park buildings going through foreclosure proceedings.

Harmonie Studios, a live-work loft building at 1502 Randolph, and the Harmonie Pointe Building, at 1407 Randolph, have delinquent first mortgages with Sterling Bank totaling more than $1.8 million. The DDA has secondary position loans outstanding for more than $1.6 million, Brian Holdwick, vice-president of the Detroit Economic Growth Corp., told the DDA board. The DEGC staffs Detroit’s development authorities.

Randolph Center, at 1435 Randolph, site of the former Intermezzo Restaurant, went to foreclosure April 20 on a TCF first mortgage of almost $2.9 million with the six-month redemption period up on Oct. 20, Holdwick said. The DDA has second-, third- and fourth-position loans totaling $2.7 million on that property.

“If we let the banks foreclose, then our loans are wiped out, and we believe these properties are worth much more than those mortgages, so we’re protecting our interest,” Holdwick said. The DDA board approved using up to $5.05 million to pay off the banks.

The owner of the properties is architect David Schervish, the early driver of Harmonie Park redevelopment.

Schervish, president of SVM Development Corp., said he did not know about the DDA takeover of the buildings and said he had no immediate comment.

Schervish also owned the 100-year-old Harmonie Club Building at Centre Street and East Grand River. It was taken in foreclosure last year and is currently owned by Southfield attorney Youssif (Joe) Odish. The building is vacant but being redeveloped, real estate sources said.

Brian Pastoria, a partner in Harmonie Park Creative Group L.L.C., has owned his building at 1427 Randolph for 10 years.

“We want this whole area to become a music, entertainment and dining center, but have been waiting for all these problems to pass,” Pastoria said. “We’ve been in a stall mode, but now maybe we can work together with the city and make it real.”

Holdwick said Harmonie Park’s location near the Opera House, Gem Theatre, Detroit Athletic Club, the stadiums and other entertainment venues makes it a key for downtown Detroit’s redevelopment.
http://www.crainsdetroit.com/a pps/pbcs.dll/article?AID=/2006 1004/REG/61004003/1007
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3rdworldcity
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Username: 3rdworldcity

Post Number: 293
Registered: 01-2005
Posted on Wednesday, October 04, 2006 - 4:27 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

DDA says: "...we believe that the properties are worth much more than those mortgages, so we're protecting our interest." BS. If the properties were worth more (not even "much more") Schervish would refinance them and pay off the mortgages or sell the properties and take out the equity (which per the DDA is allegedly "much more" than the mortgages.)

The DDA should cut its losses and let the properties go instead of pissing away more money. They don't have an ounce of sense in the whole operation over there.
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Supersport
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Post Number: 10722
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Posted on Wednesday, October 04, 2006 - 4:41 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

Soon to look like the former Bomac's site.
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Drm
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Post Number: 1060
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Posted on Wednesday, October 04, 2006 - 8:28 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

The DDA might never get its money out of the properties. There might be more money owed that's secured by the properties than their current market value.

But what else should the DDA do? Take the loss and let the properties be sold at a foreclosure sale? We've seen what has happened to other properties in the CBD when that happens. At least this way the DDA has some control over the buildings' future, which has to be worth something.

Harmonie Park has potential. Just a few years ago the place was buzzing with activity. Perhaps the DDA can bring in some new blood who can re-energize the neighborhood.
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Sfdet
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Post Number: 83
Registered: 11-2003
Posted on Thursday, October 05, 2006 - 2:24 am:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

3WC - it seems to me that the dda is only saying that the properties are worth something more than the first mortgage, but less than the sum of the first, second, third and fourth mortgages. in the case of Randolph Center, the owner can't refinance because the property won't support a new loan of $5.6 million. the owner believes that the the property is worth less than the sum of the mortgages, otherwise it would sell. however, if the property were only only worth, say, $4.6 million, DDA protects its position by taking title because it can reduce its loss by selling at the market. at a $4.6 million sale price, dda's would be left with $1.7 million after paying off the $2.9 million first loan. dda's loss in this scenario would be $1.0 million ($2.7 million in total DDA loans outstanding minus the $1.7 million in sale proceeds after paying off the first lender). if DDA were to walk and let the first lender foreclose, its loss would be its total loans outstanding totaling $2.7 million. to protect its interest, DDA should take title if it thinks the property is worth more than the first loan.
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Itsjeff
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Post Number: 6999
Registered: 10-2003
Posted on Thursday, October 05, 2006 - 1:10 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

Harmonie Park has potential. Just a few years ago the place was buzzing with activity. Perhaps the DDA can bring in some new blood who can re-energize the neighborhood.

They should speed up the revitalization of Harmonie Park so that 3rdworld can start hating it.
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3rdworldcity
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Username: 3rdworldcity

Post Number: 294
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Posted on Thursday, October 05, 2006 - 2:43 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

Sfdet: Your example makes sense if you assume there is that much "equity" above the 1st mtg. If there is, DDA should have been beating the bushs for the last 6 months since the f/closure sale (and, even before that, when the loans went into default) and lined up a buyer at some price over and above the 1st mtg amt. Maybe it tried and couldn't come up w/ anyone. Probably didn't.

In any case, if the value of the properties IS substantially above the amt of the first mtg, there would have been other buyers at the f/closure sale who would have over-bid the mortgagees (lenders) at the sale; had the value been there and that occurred, the amt of the overbid would have beeen applied in reduction of the DDA's loan. My guess is that the mkt value is not much more than the 1st mtg or there would have been other bidders, but I don't know that.

Your example makes sense if your mkt value is correct (a very big IF, I think), but I think if the numbers in your example are realistic, there would have been overbidders, and the DDA would have gotten some money out that way. (The DDA's record in these situations has been miserable, and it's clear they have little understanding of what they're doing as evidenced by the fact they made all those junior mtg loans in the first place.)

Somebody ought to keep following this to see how it all ends up. Sfdet, I hope you're right.
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Bibs
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Username: Bibs

Post Number: 587
Registered: 10-2003
Posted on Thursday, October 05, 2006 - 6:24 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

I feel sorry for the owner but I also would like to understand how these properties ended up in foreclosure. Is it a case where the owner spent too much on improvements and didn't leave enough cushion for tenants not paying etc.? Ran out of working capital? Some of the restaurants are vacant and they have the potential to generate cash so I'm scratching my head.
Obviously, when you own large properties, you have very large problems which can be difficult to manage!
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Kiplinger
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Username: Kiplinger

Post Number: 32
Registered: 06-2006
Posted on Friday, October 06, 2006 - 2:15 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

IMHO, the property prices were based on potential and not reality. When Schervish's idea for revitalization took root everyone with property in that area raised rents and selling prices with the hopes that it would happen. It didn't happen soon enough and there was a lot of bait and switch for the highest bidder (remember the coffee shop that was there and Del Pryor Gallery)?
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3rdworldcity
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Username: 3rdworldcity

Post Number: 295
Registered: 01-2005
Posted on Friday, October 06, 2006 - 2:54 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

My guess as to what typically happens when the DDA gets involved:

At least one of the lenders made the loan solely to satisfy CRA requirements (Community Redevelopment Act...requires certain lenders to make a specific percentage of loans in the lender's marketing area, even thought the lender would not otherwise make such loans.) The lender took a 1st mortgage and made the loan based on the appraised value of the property. The appraised value was not nearly sufficient to make a loan large enough to develop the property.

The borrower then went to the DDA w/ a pie in the sky story as to the value of the property and the neighborhood once the development was completed. So the DDA made a huge loan not based on realistic expectations of increased property values, but on its typical pie-in-the-sky projections.

Of course the prospect of increased valuations did not even come close to projections and the project went under.

There was no real equity above the first mortgage in the project when the DDA made the loan and there probably isn't much "equity" above the 1st mtg amount now. Good DDA dollars after bad. That's my guess.
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3rdworldcity
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Username: 3rdworldcity

Post Number: 296
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Posted on Friday, October 06, 2006 - 2:56 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

My guess as to what typically happens when the DDA gets involved:

At least one of the lenders made the loan solely to satisfy CRA requirements (Community Redevelopment Act...requires certain lenders to make a specific percentage of loans in the lender's marketing area, even thought the lender would not otherwise make such loans.) The lender took a 1st mortgage and made the loan based on the appraised value of the property. The appraised value was not nearly sufficient to make a loan large enough to develop the property.

The borrower then went to the DDA w/ a pie in the sky story as to the value of the property and the neighborhood once the development was completed. So the DDA made a huge loan not based on realistic expectations of increased property values, but on its typical pie-in-the-sky projections.

Of course the prospect of increased valuations did not even come close to projections and the project went under.

There was no real equity above the first mortgage in the project when the DDA made the loan and there probably isn't much "equity" above the 1st mtg amount now. Good DDA dollars after bad. That's my guess.
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Zephyrprocess
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Username: Zephyrprocess

Post Number: 59
Registered: 08-2006
Posted on Friday, October 06, 2006 - 5:14 pm:   Edit PostDelete Post   Move Post (Moderator/Admin Only)

3WC--wow, that's the story I keep hearing repeatedly!

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