Out of the Dark
No City Felt The Effects Of The Bank Of The Commonwealth Scandal As Much As Norfolk. But A Few Developers Are Investing In The Buildings Left To Die, Bringing Many Downtown Properties Back To Life
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When asked how many total properties were involved, Harrell says that the exact figure is “a moving target. There was an initial amount and we’ve sold some of those but more have been added to the pot [through foreclosure].”
This mass purchase was a first for Southern Bank, established in 1901. “Acquisitions happen all the time,” Harrell says. “Banks buy other banks. But it becomes more complicated when you purchase the assets of a failed bank from the FDIC. There’s a loss share agreement with the FDIC where the FDIC agrees to cover a percentage of the losses that occur. That protects the healthy bank. And that loss share is where everything kind of gets complicated.”’
(To illustrate, the banking executive passes along a link to an online FDIC video that explains the loss share process. He’s right: it is very complicated, capable of making a layman’s head throb. Make yourself a strong drink and view it at http://www.fdic.gov/bank/individual/failed/lossshare/index.html.)
Many of the buildings auctioned by Southern Bank have already found new use, like the properties acquired by Balance Builders, a Virginia Beach-based contractor. A formerly vacant storefront in the city’s new arts district, at 763 Granby Street, formerly controlled by Arney, will soon reopen as a stage for the comedy group the Pushers; plans are for the space next door at 765 Granby to become a restaurant.
But downtown seems to be where the real action is, thanks largely to developer Buddy Gadams. The former BoC-affiliated properties that his Marathon Development firm acquired—including the historic Madison Hotel on the corner of Granby and Freemason—will make him downtown Norfolk’s largest landlord, controlling more than 700 apartment spaces. “There were hundreds of people hurt by [the scandal],” he says. “Mainly borrowers because there were very uncertain times at the bank. These borrowers were pretty much in limbo and trying to figure things out.”
He adds that the city’s reputation took a bit of a hit too. “Downtown was somewhat red-lined to where other banks didn’t want to loan money,” he states. “And that’s because there were all of these troubled assets. Now that’s changing. Still, most of my downtown projects were [financed] with out of town banks or Stellar One Bank, which was just coming into town. Most of the local banks didn’t want to touch anything downtown when I originally approached them. They told me that they just weren’t interested.”
Gadams is currently in the process of turning the Hotel into 77 apartments and four retail/office spaces, with hopes to rebrand the iconic boutique hotel as The James. “We’ll start moving people in by August 1 of this year,” he says. “We don’t like to let things grow under our feet.” The spaces will run anywhere from $1000 to $2000 a month; 70 percent will be one-bedroom apartments, 20 percent studios and the rest two bedrooms.
The renovation has been anything but easy, he says. “Menden and Hranowskyj bought it in 2005, and the bank gave them financing on it. They wanted to turn it into office space.”
But because the developers, in cahoots with the bank, were doing, according to Gadams, “lots of fraudulent activities in many different respects,” they only attracted a handful of tenants and never even finished the build out on the property. “It was only about 25 percent complete,” he says. “I just decided that office space wasn’t the highest and best use of that property. I’m not in the hotel business, I’m more in the apartment business.” He says that, once completed, Marathon Development will have made a $12 million investment in the renovation.
The Madison, built in 1905, was a highly desirable property when it came back on the market, but Gadams says that the title was “pretty messed up. It had historic tax credit issues, it had a non-disturbance agreement that said you couldn’t do residential ... I had to go to court to clean all of that up. I don’t think [Southern Bank] wanted to go through that mess so they got it appraised and basically I made an offer, they accepted it, and I bought the note and closed on the property. I think it would have taken years to unwind that thing if the bank had done it.”
Gadams also purchased The Wainwright Building, an office complex on Bute Street. “We totally gutted it out and turned it into 126 apartments,” he says. “It took 10 months to construct and only took 4 and a half months to lease up 126 apartments, and we’re now at 99 percent [occupancy].”