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Developer Jim Donnelly is used to winning.
In the fourth grade, he says, he sold more raffle tickets than the rest of his class combined.
After graduating with his MBA from the University of Georgia, he founded a golf ball retrieval company, swimming among alligators to recover balls in water hazards. He opened offices in Wales and France.
Shortly after moving to Charlotte, he sold his first project - renovated office and residential condos uptown - with relative ease.
Now, four years after Donnelly's arrival here, most projects he started are struggling as commercial real estate continues to falter.
After years of unbridled success, many developers are trying to survive in a world where financing has evaporated, buyers are skittish, and once-chummy lenders won't return calls. Donnelly's story also sheds light into how lucrative returns - combined with easy credit - led to a seemingly endless string of proposed condo, office and retail projects.
"Success breeds an aura of invincibility," says Donnelly, a former brand manager for Kraft Foods and Coca-Cola Co. "You say, 'Shoot, that was easy. Let's do it bigger and better.' You put more in, but you make more. That was the way."
In recent years, nearly a dozen projects announced for uptown have been delayed, scaled-back or killed. Economists estimate commercial properties may ultimately lose 50 percent of their value from the market's peak, considered to be mid-2007.
At a meeting sponsored by the Urban Land Institute Charlotte earlier this month, business leaders talked about how the commercial real estate market may be hitting a bottom. But no one expects a quick recovery. One expert's advice for developers: "Write off 2010," said Stephen Blank, senior resident fellow with the institute, "and 2011... and much of 2012."
Donnelly, 40, a former Army officer, is committed to finishing his projects. He estimates he and his three partners in Pursuit Group have invested "less than $10 million" of personal savings in ventures. He knows some projects won't pay off for him.
"We're bruised, we're beaten down," he said in an interview. "I'm not saying we're saints. We'd make a payment late now and again. But as long as everything was going good, no one cared.
"It's so tempting to say 'No mas, this isn't fun, why am I working so hard for so little?'" he said. "I mean, we've dipped into my son's college fund. But the rewarding part is to roll up the sleeves and work hard."
Boom goes bust
Donnelly emerged as one of uptown's boldest developers after arriving from New York with his wife in 2005.
Fresh off his first success of buying and selling remodeled office and residential space in a building at 221 S. Tryon St., Donnelly turned to the former Home Federal Savings and Loan Building, which had sat vacant for five years. He renamed the Modernist concrete-and-glass building The Trust and carved it into eight multimillion-dollar condos. He also proposed the $65 million Encore, a 20-story residential tower that would incorporate the historic Carolina Theatre building and include an elevator for condo owners' cars.
Since then, three of The Trust's condos sit unsold after buyers backed out. Donnelly is looking for new investors so he can close on the land for Encore at North Tryon and East Sixth streets.
Earlier this month, a development company owned by Donnelly and family members, TBG Development, filed for bankruptcy protection after failing to refinance a loan. Donnelly said the company filed for Chapter 11 so it can reorganize and come up with a repayment plan. The filing only affects the first floor of 221 S. Tryon St., home of Emerson Joseph men's grooming lounge. The lender, RBC Bank, initiated foreclosure proceedings in August.
A contractor on The Trust, Heard-Ratzlaff Construction Inc., also has filed a $1.1 million lien against Trust Development Group, managed by Donnelly and his partners. The contractor has also filed a lawsuit seeking to recover more than $200,000 for work done for Emerson Joseph. Heard-Ratzlaff declined to comment, citing pending litigation.
Emerson Joseph has countersued, saying the contractor created costly construction problems. Donnelly said the contractor pushed The Trust over budget but will be paid when the next condo sells. The available condos are priced from $1.8 million to $3.6 million.
"We don't take management fees. We don't take anything until they and the bank gets paid," Donnelly says. Developers, particularly newer ones, typically earn their profits on the last units sold or leased.
Trying to hold on until 2012
Another project on South Brevard Street was scuttled after Wells Fargo & Co. bought Wachovia Corp.
Pursuit Group bought the old Grace AME Zion Church and adjacent Mecklenburg Investment building in 2007, planning to convert the church into a high-end day care for Wachovia employees.
Donnelly said former Wachovia executives had offered to guarantee a set number of slots in the center. A year later, after Wachovia's sale, Wells Fargo indicated it wasn't interested in supporting a day care, he says. Wells Fargo remains the lender on the project. About half of the 25,000 square feet is leased to office tenants.
The old development model was "leverage yourself, don't worry about generating cash, and someday you'll get a big payday," Donnelly says.
Today, survival depends on finding ways for property to generate income.
Donnelly says he's started leasing parking spaces at one property, earning "a couple thousand bucks" a month. He's also renting out one of The Trust's available units.
As for Encore, he said he's seen interest pick up from "meaningful" investors. The City Council has extended the closing deadline, for the eighth time, until December 2011. In 2006, the city agreed to sell the property for $1 million.
Six months ago, most calls came from groups preying on desperate developers, offering help but under questionable terms, Donnelly says.
Now, he says, he's fielding calls from investors who are looking to make money. But can he wait until conditions improve, possibly as far out as 2012?
Everybody's trying to figure out how to hold on for three more years, finding ways to manage risk, restructuring debt, he says.
"You can't sit around and let things come to you," he says. "It feels like we're wading in quicksand, but it is what it is. We have been (developing projects) in a miserable time. Hopefully we'll come out of it OK and with enough financial resources to reload."
