Velocity has become the first Gulch condominium to revert to bank control.
In what is sometimes called a “friendly foreclosure,” Velocity in the Gulch Inc., a joint partnership between Bristol Development Group and MarketStreet Enterprises, filed a quitclaim deed June 25 that conveyed any rights or interests in Velocity’s 223 unsold condo units and ground-floor retail space back to the project’s lender.
Like last year’s auction at the neighboring Terrazzo condos, it’s another painful step, but one that could get the once heralded — but now struggling — Gulch condo market closer to a point where prices match demand, industry watchers say.
Velocity in the Gulch had taken out a $45.6 million construction loan in 2007 from Compass Bank, which apparently formed the entity Velocity Residential LLC in late May to become the building’s new owner. According to property records, Velocity Residential shares a Houston, Texas, address and suite number with a Compass Bank office.
Such quitclaim deeds, which must be voluntarily pursued by a borrower, are sometimes used to avoid a bank-directed foreclosure, said Larry Papel, a real estate attorney with Baker Donelson Bearman Caldwell & Berkowitz PC.
In these cases, generally borrowers have “decided that they won’t ever get their money out of this, and it’s costing money to continue the project every month,” Papel said.
John Cheadle, an attorney with Nashville firm Cheadle and Cheadle who has often been named as a receiver when other area condos have fallen into bank possession, said a deed in lieu of foreclosure offers benefits to both a bank and borrower. The bank is spared the time and expenses of pursuing a formal foreclosure, as does the borrower, who also avoids having a foreclosure on its record.
“... (I)t looks like to most of the world that it was simply a conveyance or transfer,” Cheadle said, adding that friendly foreclosures can still hamper a borrower’s credit record.
A Compass Bank spokesperson did not return calls for comment.
Bristol Development Group will continue to manage the building and sell units on behalf of Compass.
This, Papel said, suggests that Bristol and Compass maintain a good relationship.
While Bristol will likely be paid for its advice to Compass, the bank will be the ultimate decision maker as it relates to the condo units.
A similar scenario has played out at Terrazzo, where developer Crosland Tennessee continues to sell units and provide input to Canyon Johnson Urban Funds, the building’s equity partner that now calls the shots.
Asked if MarketStreet will continue management of the building’s retail component, Joe Barker, the company’s chairman said, “We’ll be involved in the whole project. I think that’s the best way to describe it.” He declined to elaborate.
Principals with MarketStreet and Bristol declined to offer specifics of why changes were made. Barker said the new arrangement represented “a little bit different structure” for the project.
“We’ve reworked the deal, and we’ve recapitalized it,” Barker said.
Charles Carlisle, CEO and a principal of Bristol, also declined to comment on specifics of the arrangement.
“We restructured the finances, much like we did with Icon before this,” Carlisle said, referring to the construction loan with Fifth Third Bank that Bristol and MarketStreet amended late last year for the Icon, another Gulch condo.
Sales of Velocity units started slowly, a fact recognized by its developers.
Construction started on the building in October 2007, but condo units were first made available for presales in May 2007. On the first day of availability, developers announced 85 sales.
To date, however, only 40 of the building’s 263 units have sold, according to Davidson County property records.
Carlisle expected a greater “sales pace in the very near future,” but he stopped short of saying a change in pricing at Velocity is forthcoming.
The first batch of units to close inside Velocity sold for more than $300 per square foot; units sold last month for between $226 and $256 per square foot, according to county property records.
“We’re always looking at our pricing to adjust to the current market,” Carlisle said.
Cheadle said banks aren’t in the business of managing real estate, so Compass will now face the same questions as if Velocity had entered receivership: whether to sell the remaining units in one swoop to an interested buyer, or, as appears to be the case for now, allow Bristol to sell units individually. Historically, a bank will be more willing to drop prices, Cheadle said.
Angela Wright, a broker and principal of Urban Abode, said the new ownership structure shouldn’t raise a red flag for potential buyers, though she said she would make clients aware of the change. Wright said she didn’t expect a “fire sale” in wake of the change.
Grant Hammond, a real estate broker who specializes in condos, said the change may help the building find traction.
“In this particular case, it may be a positive for Compass Bank to own the Velocity condos,” he wrote in an e-mail. “It frees up developer capital to (lease) the ... retail space and allows condo prices to drop to a point where they make sense again.”
