Loan documents show some of Ballantyne Village, the upscale shopping center that avoided foreclosure in 2010, may be turned over to its lender, despite the centers improving finances.
The villages owner, BV Retail LLC, told the Observer in a statement that BV Retail is the owner of record of a portion of the village and that there has not been a notice of foreclosure filed against the property. BV Retail declined to comment further, saying the loan is a private agreement.
The centers struggles illustrate how loans made in the boom time that later went bad still haunt borrowers, even as business picks up. While retail occupancy rates and rents have begun to rise, it may be too late for some owners to keep their projects.
BV Retail borrowed $50 million near the height of the real estate market in 2006 to pay for the village, located at a key intersection in one of Charlottes most affluent neighborhoods.
Three years later, BV Retail had stopped paying on the loan, and the lender started foreclosure proceedings.
The lender stopped those proceedings, and in March 2011, loan documents show BV Retail entered into a forbearance agreement. That agreement gave BV Retail the opportunity to get out of its loan by buying three of the south Charlotte centers main buildings at a set price or turning over the title by Oct. 1, which was Monday.
Loan documents from September suggest BV Retail intended to proceed with the second option.
Borrowers counsel has informed Lenders counsel of the Borrowers intent to proceed with a deed in lieu of foreclosure effective Monday, say loan documents from Bloomberg and from Trepp, a national commercial real estate and analytics firm. Appropriate legal documents are being prepared and due diligence efforts have been started by the Servicer in regards to the transition of title.
Mecklenburg County property records as of Friday show BV Retail as the current owner.
Built with high expectations
Ballantyne Village was conceived and built at the height of the real estate boom, and was initially appraised at more than $71 million in 2006. The current appraisal value of the upscale shopping center, and the price BV Retail would have had to pay to get out of the loan, is $23.1 million, according to loan documents.
Located at Ballantyne Commons Parkway and Johnston Road near the heart of Ballantyne, expectations were high for the shopping center, which includes restaurants, high-end retail and a movie theater.
But tenants struggled as the financial industry consolidated and laid off workers. One of the most affluent ZIP codes in the Charlotte area, Ballantyne is home to many bankers and others who work in finance.
BV Retail took out a $50 million interest-only loan from Bank of America in 2006. The loan, which originally matured in 2008, had three 12-month extensions, the most recent in September 2011.
BV Retail stopped paying on its loan in spring 2009, according to Trepp.
According to the forbearance agreement, signed in March 2011, BV Retail was obligated to pay interest on $14 million of its loan, while interest payments were deferred on $17.5 million. The three main properties on Ballantyne Village Way were pledged as collateral for the loan, which was packaged and sold to investors.
The villages parking deck is not among the properties put up as collateral, according to Trepp.
Lawsuit with contractor
The village opened with 140,000 square feet of boutique retail and 25,000 square feet of office space. But plans for a hotel, offices and a condo tower were shelved when the economy faltered, eliminating the captured audience developers had been counting on to boost sales.
When the economy turned, retailers asked for rent concessions. The shopping center was able to improve vacancy rates in 2008, but only by offering cheaper rent.
The shopping center also lost a major anchor, Table Restaurant, when it closed in 2008 after being open for just two years. The centers occupancy at one point fell to 50 percent.
Court documents show BV Retail also is involved in a lawsuit with its general contractor. BV Retail has sued construction firm Rodgers Builders, the general contractor that built Ballantyne Village, in Mecklenburg County court. The company is alleging that construction defects by Rodgers led to water damage, leaks and other problems.
Rodgers has denied any defects in the construction, court documents show. The contractor said lack of maintenance was a contributing factor to any problems. The companies have agreed to mediate their dispute, records show.
Occupancy up in June
Despite the troubles, Trepp data suggest the villages fortunes have been improving. Occupancy had risen to 85 percent as of June. The center also was better able to cover its mortgage payments than in 2011, generating roughly $1.50 for every dollar due, up from 98 cents in 2011.
In recent months, the center has leased nearly 15,000 square feet to tenants including a chiropractor, plastic surgeon, womens boutique, restaurant and a yogurt shop. Pizzeria Mellow Mushroom, which moved into the space vacated by Table Restaurant, attracts 7,000 customers a week, according to BV Retail.
Economic development and commercial real estate analyst Kathleen Rose says she expects more Charlotte-area projects to run into problems with their financing, despite the improving economy.
Just like how residential real estate went through a period of distress and foreclosures, now were seeing the same wave in the commercial side, said Rose of Rose & Associates Southeast.
Projects and deals that have been challenged because of the economy are going to be showing their stress.