Lender foreclosing on Ann Arbor's Ashley Terrace high rise; $20 million owed
Ashley Terrace.
Ann Arbor News file photo
An $18 million loan that financed Ann Arbor's largest downtown redevelopment is in default, according to a foreclosure filing, with the lender seeking a total of $20.1 million from developers Joseph Freed & Associates.
The loan for Ashley Terrace dates from 2005, when Chicago-based Freed finalized plans to build the 10-story high-rise consisting of 99 condos, 71 of which are excluded from the foreclosure.
It also has 10,000 square feet of street-level retail space - which remains unleased - and 16,500 square feet of second-floor offices, including a Flagstar Banking Center.
The location is the corner of West Huron and North Ashley streets.
Freed and several other developers aggressively pursued downtown Ann Arbor redevelopment opportunities over several years. The company also operates 411 Lofts, a student high-rise that opened in the fall at the corner of South Division and East Washington streets
Among Freed's other projects in Ann Arbor were the Arborland redevelopment in the late 1990s and Glen Ann Place, a long-delayed and still-unbuilt mixed-use project near the western edge of the University of Michigan's medical campus.
Downtown activists were concerned as Ashley Terrace and other projects were proposed for the central business district, with forces advocating higher density, mixed-use buildings clashing with others who said the market for downtown housing was limited.
Ed Shaffran was among those who cautioned against overbuilding. He said this afternoon that the Ashley Terrace foreclosure appears to signal what he warned against: New construction downtown could only be built at a price that would effectively price a typical unit out of the range of most buyers.
Today, active listings at Ashley Terrace include a two-bedroom condo at $355,000 - or about $285 per square foot. A one-bedroom model for $274,500 is $297 per square foot.
In comparison, homes in that price range in the city are on the market for under $225 per square foot, and a buyer could choose new construction with an Ann Arbor address for under $150 per foot.
"The pricing was high," Shaffran said. "Extremely high."
Much of the cost covered the cost of construction, Shaffran said, which likely left the developers little room to negotiate a deal.
Ashley Terrace's condos were among the estimated 2,000 new housing units downtown that were in some stage of proposal from various developers in mid-2004.
Among those projects were Liberty Lofts, a redevelopment by the Morningside Group of Chicago; The Gallery, which is unbuilt and in litigation between the lender and developer Mike Concannon; and a partnership between the city and Village Green to build a high-rise with public parking at First and Washington.
Developers disagreed over the market demand for downtown condos, too. Shaffran, who developed several loft-style condos as well as The Armory on East Ann Street, estimated the demand at 200.
Chris Grant, vice president at First Martin Co., agreed.
"We were always under the belief that there isn’t a downtown condo market," Grant said.
Successes have been niche units that have been converted, like the Armory, Grant said.
"But it costs an awful lot of money to do a 100-unit or 120-unit development, especially when you do it all at once."
Unclear is what the foreclosure means to residents.
The likely next step is for a receiver to be appointed to run the building operations. Next, Shaffran predicted, the lender will seek a new owner. And as the price falls for a new buyer, there may be the potential for the 28 remaining units to come onto the market at lower prices than other units sold for.
"Someone's going to take a bath," Shaffran said. "Most likely, it's the financial institution."
The loan is held by Special Services Asset Management Co., which is registered in Illinois. That company acquired the loan on April 19, according to the legal filing, and it appears to be connected to Bank of America. The loan previously had been held by Bank of America, and it originated with LaSalle Bank.
Officials at Freed declined to comment, said Jane Thompson, communications consultant to the company.
"We have not been served with any court papers yet, so we have no comment at this time," she said.
Paula Gardner is Business News Director of AnnArbor.com. Contact her at 734-623-2586 or by email. Sign up for the weekly Business Review newsletter, distributed every Thursday, here.
Comments
a2miguy
Fri, May 14, 2010 : 4:31 p.m.
The city seems as if they are in a rush to develop every nook and cranny of land available in town. I understand the need for an increased tax base, but this oughta be a wake-up call. Building these ugly and over-priced condo buildings is a huge mistake. It is uglifying our city. The City Council should cease and desist from accepting any futher proposals for this type of structure until there is a demonstrated need for more high-priced housing units downtown.
a2jay
Wed, May 12, 2010 : 9:55 p.m.
@javajolt1: I hear ya. Unfortunately, I think the Main Street Area Historic District begins just south of Huron Street. The Old West Side Historic District begins west of the railroad tracks. Probably exactly why Joseph Freed liked the site. It's truly a sad building especially when compared to the recent restoration of the Key Bank building - just one block away!
alterego
Mon, May 10, 2010 : 7:45 a.m.
Can it be rezoned and converted into a hotel/convention center?
Feetballubet
Sun, May 9, 2010 : 8:38 a.m.
I looked at these condos just to get a read on how crazy the development plan really turned out. The sales office was staffed by a part time gal who could not explain how the condo fee was used. The condo fee was 400 plus dollars!!! She stated that the ideal buyer was an investor, a part time owner, a retired person, or a downtown professional. Essentially an upper income buyer who did not want alot of space for the money and like elevators and views of parking lots. This works in Chicago. With easy access to downtown from a stones throw away, this would never work at this price. At foreclosure, 29 units will be auctioned, destroying an chance for the other 71 owners to recover any value in the next 10-15 years. Ann Arbor is a small college town. Even Austin could not handle this kind of volume and price. A dream, Lasalle sold to BAC for a reason.
Mick52
Fri, May 7, 2010 : 11:23 a.m.
I agree with Alphamale. For a $355k, a two bedroom condo? I hope that includes association fees. You can get a whole house for $300K and likely an easier resell when the economy balances out.
uawisok
Fri, May 7, 2010 : 10:18 a.m.
The outcome of this privately financed project reminds me of the large hole in the ground that is going to be a underground parking garage with the "HOPE" private money will build something worthwhile on top of it. Well hold onto your wallets `ann arbor taxpayers cause I feel a big hurt coming our way!!
javajolt1
Fri, May 7, 2010 : 9:29 a.m.
I have got to agree with a previous poster: this has GOT to be one of the most hideous buildings in all of Ann Arbor. It has the least inviting facade and I wouldn't want to live there if they cut the price in half. As City Council and the Planning Commission and the historic commission debate the color of someone's front door on the Old West Side,they allow an aesthetic disaster to loom tall over an entire historic neighborhood. Who approved this thing anyway??
Hot Sam
Fri, May 7, 2010 : 6:03 a.m.
Perhaps things would be better if it didn't look like an Easter Bloc reject. Why do our planners allow such ugly buildings to go up?
AnneB
Thu, May 6, 2010 : 9:50 p.m.
1) That is the ugliest building in town and there are some ugly ones. 2) All those who wanted to move into the Moravian Devo could move in there if the units could be rented.
Castanza
Thu, May 6, 2010 : 8:35 p.m.
Shocker...
CynicA2
Thu, May 6, 2010 : 7:56 p.m.
@KJM - no offense, but I think you must have smoked some of that same stuff those city-rankers over at "Forbes" magazine got into... causes really intense delusions and hallucinations. You'll know you're coming down when you start picturing A2, in 5 years, kind of like a downstate Escanaba.
KJMClark
Thu, May 6, 2010 : 7:31 p.m.
Here's a prediction, maybe we can come back in five years and see if I was right: five years from now, that building will be full, and people will be clamoring for downtown living units. These units will be worth more, after inflation, than they originally tried to sell them for. The demand for these units is down because of the financing crash that came with the housing crash, and because oil prices dropped when demand fell due to the same housing crash. Of course, housing crashed in part because of the high oil prices. We're not done with high oil prices. I expect the economy to pick up within five years from now enough for those oil prices to head back up, and make downtown living quite attractive.
halflight
Thu, May 6, 2010 : 6:10 p.m.
Not great news, but a quick foreclosure is the best thing for a situation like this. The foreclosing institution will take a bath, but that's part of its job-- taking a risk that a borrower won't be able to make the payments. The co-owners of the sold units will also take a hit when the unsold units go on the market for a substantially lower price. I don't think it tells us much about the market for downtown housing, though, because the number of people who qualify for a mortgage has drastically reduced. Those who purchased will now rent. There are still a number of apartment projects proposed for downtown, and I'd guess those developers have done their marketing research.
Dalouie
Thu, May 6, 2010 : 5:57 p.m.
Freed is a big company with a lot going on in Chicago, they aren't fools. When this was conceived and they got financing their market data must have shown they could make it work but then the bottom fell out of everything when the market crashed. Bad timing but then, hindsight is easy. But the high priced rentals seem to be going well. They are all full and more are coming into the pipeline.
John Alan
Thu, May 6, 2010 : 5:20 p.m.
Sad situation for City of AA assessor's office!!! Another wake up call.... Now what they have to drop the value and tax it realisticly!!! Ofcourse they will be denying that the values are high and claim it is AA and should be taxed Ann Arbor Style (i.e., paying through your nose for nothing)!!!
TF
Thu, May 6, 2010 : 3:06 p.m.
Who wants to pay $300k to live in a building surrounded by parking lots? As far as downtown is concerned, that place is in the middle of nowhere. It is close to a few bars, but there's not a whole lot of foot traffic there. For that kind of money, I'd want to be more in the mix of things.