NASCAR office tower lenders could take a $40 million loss

NASCAR office tower lenders could take a $40 million loss

NASCAR office tower lenders could take a $40 million loss

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by Kerry Hall Singe | Charlotte Observer

WCNC.com

Posted on August 27, 2010 at 8:14 PM

CHARLOTTE, N.C.-- Regions Bank wants to foreclose on the NASCAR office tower in uptown Charlotte but claims Wells Fargo is preventing it from doing so, according to documents Regions Bank filed last month.

An affiliate of Indiana-based Lauth Property Group Inc., Corporate Plaza Partners LLC, developed the 19-story tower next to the NASCAR Hall of Fame.

Corporate Plaza Partners defaulted on a $95 million loan after it matured in November, according to court filings.

Alabama-based Regions claims that Wells “failed and refused to take timely action to collect on the CPP loan or otherwise protect the lenders from incurring potentially huge losses” after the tower failed in December to pay back more than $70 million it still owed, according to documents filed in federal court in Indiana.

Regions is suing California-based Wells for breach of contract.

Regions also says in its filings that Wells made a “shocking” proposal around June 17 to buy Regions’ share of the loan for roughly 42 cents on the dollar.

Wells declined to comment, citing pending litigation. Regions has said it doesn’t comment on court matters.

The lawsuit is the latest example of how developers are struggling to refinance or repay loans amid falling property values. And it shows how banks are wrestling with poorly performing loans and having to decide whether to take over projects or not.

Last month, Regions started foreclosure proceedings against another marquee uptown project, the EpiCentre, saying developers had stopped paying on a $90 million loan in December.

Regions’ lawsuit also provides insight into how much uptown commercial office values have fallen during the downturn.

Regions claims a Wells Fargo officer as recently as June 24 indicated the lenders faced a $30 million to $40 million loss on the loan because of rising vacancy rates in uptown’s office market.

Regions and San Francisco-based Wells Fargo each put up half of the loan, but Wells is charged with administering it. Wells later bought Charlotte-based Wachovia.

Regions’ lawsuit suggests Wells’ own leasing activity has hurt the project. Wells has been consolidating employees and shrinking its uptown footprint, helping boost vacancy rates. Earlier this year, Wells opened its newest, 48-floor uptown skyscraper now known as Duke Energy Center.

“Given Wells Fargo’s first-hand knowledge of and participation in the Charlotte real estate market, Wells Fargo anticipated or should have anticipated the decline in the Charlotte market and its consequent impact on the value of the NASCAR Corporate Plaza,” the filing says.

Roughly two-thirds of the building’s 390,000 square feet is available for lease.

NASCAR is the largest tenant with 118,000 square feet, followed by the Federal Deposit Insurance Corp., which has taken around 16,000 square feet.

Uptown’s vacancy rate as of the end of the second quarter was 12.1 percent, up from 3 percent at the end of 2007, the year Lauth took out the loan.

When Wells announced the NASCAR tower loan in July 2007, the financial markets had yet to unravel.

Lauth was to have taken 7,000 square feet in the tower. But in May 2009 it put three of its companies, including one that owned Corporate Plaza Partners, into bankruptcy protection.

The developer also reached a settlement with the city of Charlotte over disputed costs related to the parking deck.

Lauth and the city were to share the cost of the deck that serves the tower and city-owned NASCAR Hall of Fame. Lauth stopped paying for its share in September 2008. An arbitrator later awarded the city $5.1 million for design and construction costs owed by Lauth.

The city said Friday it’s still owed $2.77 million. It said that Lauth will get some financial credit for work it did on the hall of fame stairwells.

The office tower has struggled to attract tenants. Some companies may not want or need to be associated with NASCAR, said real estate analyst Andrew Jenkins of Karnes Research.

“The banks and the like who own towers find it easier to attract tenants who want to do business with them,” he said. “NASCAR doesn’t have clientele who need to be in a building like that.”

Jenkins said Wells, which has its East Coast headquarters in Charlotte, may be hesitant to foreclose because it wants to avoid a public relations backlash.

“It might be more to avoid a perceived impact than anything else,” he said. “Word could spread that the commercial markets are failing in Charlotte and the bank’s behind it.

“You don’t want to do that. Especially if you’re a landlord.”

Staff writer Steve Harrison contributed.

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