By Mark Schultz, Staff Writer at Chapel Hill News
CHAPEL HILL – The developer of 140 West Franklin, the luxury condominium and retail project under way downtown, says the project will succeed because of its location, financing and luck.
Ram Realty Services rebid the eight-story project after the recession hit and contractors were hungry for work, chairman Peter Cummings said. That reduced costs from $76 million to $55 million, including the town’s parking structure.
“We’re lucky,” Cummings said in an interview at the project’s Franklin Street sales office. “If the town approval process was 12 months faster we might have started building at the wrong time.”
The possible foreclosure of the Greenbridge project has some asking about 140 West Franklin, which along with the redevelopment of University Square, will transform downtown Chapel Hill. Greenbridge has sold only 36 of its 97 units, and Bank of America has begun foreclosure proceedings to take control of the property.
But Cummings said 140 West Franklin, with underwriting from Wells Fargo, is fundamentally different from Greenbridge.
“We’re very conservatively capitalized,” he said.
Projects like 140 West Franklin historically would get up to 90 percent financing and use customer deposits to build, he said. About a year ago Ram decided not do that, Cummings said.
“The fact is there’s no debt on this property,” he said. “We won’t start to draw on the loan until probably sometime in the first quarter of 2012.
“Everything you’ll see happening – excavation site work, creation of the underground parking, creation of the foundation probably all the way up the superstructure – is going to be done with equity.”
Cummings would not say how much equity Wells Fargo required, and the bank would not discuss the loan. But he did say that, post-crash, banks are now loaning 50 percent to 65 percent of project costs and “that’s the range we’re in.”
Finance experts suggested Ram is spending its own money because it has no choice. And one said the company is taking a big risk.
Bank typically require a percentage of units to be under binding contracts before they loan money, said Steve Cumbie, executive director of the Center for Real Estate Development at UNC.
Ram has contracts on about half its 140 planned condominiums, including all 18 units priced to meet the town’s affordable housing guidelines, Cummings said. It needs a dozen more before it can draw on its loan, he said.
“We’re pretty confident we’re going to get there,” by early 2012, he said.
Building now takes advantage of cheaper construction costs, but also presents a risk if the market for high-end condos doesn’t materialize, said Tony Plath, associate professor of finance at UNC-Charlotte.
“They’ve got a lot of guts,” he said. “You’ve got to have a lot of appetite for risk in this market to do that. They obviously have a lot of confidence in their ability to create a building that people want to buy.”
Cummings didn’t want to discuss Greenbridge in detail. He did say his project, because of its more central location, will be “green” without marketing it as such because people won’t have to drive to go out.
“Greenbridge’s trademark was eco-friendly,” he said. But “80 percent of the die is cast by virtue of where you put it. That trumps a lot of other decisions you make [in building materials, HVAC systems]. Our marketing message is not a green message. What we’re offering, I think, is location.”
The condos in 140 West are now priced from one-bedroom units in the $290s to two-story, 3,000 square-foot terrace homes for $1.3 million. Cummings said he’s not worried that Greenbridge’s troubles will lead to a price war if that project lowers prices to quickly sell more units.
“You don’t want to see a project fail in the middle of town,” he said, then added: “I shouldn’t say fail. You don’t want to see a project in stormy seas. The one thing I’m saying categorically is we have a better location.”
Staff writer Katelyn Ferral contributed to this story.