Terrapin Properties, Developer of Burnham Pointe, is in Financial Trouble
Crain’s reported on Terrapin’s financial problems a week ago but now the Sun-Times is confirming that the company could be the first of the big condo developers to go out of business.
Terrapin Properties is the developer of 901 W. Madison in the West Loop as well as Burnham Pointe at 710 S. Clark in the South Loop. Burnham Pointe is scheduled to start closings later this year but is only 55% sold.
The bank is going after one of the company’s properties in Kenosha, Wisconsin:
Indymac Bank, the primary lender on the 162-unit condo development in Kenosha, last month sued Terrapin for more than $13 million in back debts. But the case isn’t a garden-variety foreclosure in which a lender has no recourse beyond getting the keys to the property.
Terrapin’s principals, including James “Jake” Geleerd and Michael Ezgur, personally guaranteed the loan, according to the suit. Indymac is going after them, as well as principals Sherwin Braun and Greg Braun, to collect.
According to the article, Terrapin is looking for a way to stall for time.
Sources said Geleerd begged for time Friday on a conference call with a large number of creditors. They said Geleerd asserted he was close to selling the Burnham Pointe condo inventory to somebody whose cash would prop up the company.
“The atmosphere was pretty intense,” one person said. “And nobody believes that in this market, there’s an investor looking for condos.”
Could he be trying to sell the rest of the condos in the building to one of the vulture hedge funds that have been buying up chunks of condo buildings in Florida?
Either way, it doesn’t sound good for any of Terrapin’s properties, especially Burnham Pointe. How many of the flippers will end up closing on units in that building if the developer has gone under?
Stay tuned.
The vulture funds will pay about thirty cents on the dollar at most for bulk purchases, hence the disbelief of the “person” quoted. That would not be a workable strategy for the mortgage holders at this time, although they may have to take that type of offer after foreclosure.
I think we are seeing good candidates for additional oversupply of the rental market.
“I think we are seeing good candidates for additional oversupply of the rental market.”
Wouldn’t it be great to see rents coming down along with home prices! If you rent you have everything in the palm of your hand if you own you’re screwed either way.
Rents already fell in the 4th quarter 2007 for the downtown market, there is an additional 25+% of supply in the construction pipeline for 2008/09, and the recent (contracts from 2005-present) ‘accidental landlord’ condo market is probably another 25+% in additional supply. This doesn’t even take into account the failed condo projects that will become rentals or the ‘accidental landlords’ made from prior condo purchasers who need/desire to move but can’t sell.
The only conclusion is that rents should continue to decline.
G – I know the markets are inter-connected, but do you think that rent declines in the Loop/Near North Side area (which is i believe the area you were talking about in your post) will have much of an impact in, say, Lakeview, where I don’t think supply addition has been as great? or Uptown? It seems most of these huge buildings are downtown so maybe that’s where impact will be greatest.
bubbleboi, the downtown market is what I follow closest. I think the impact will be felt to varying degrees in the neighborhoods. You have to look at what property types have seen large increases in supply to determine where the problems will be greatest. Think along the lines of new 2/2’s along North Ashland. The north side lakefront neighborhoods are highly transient. Many recent buyers will want or need to move in the near future due to starting families, job changes, etc. Many will not want to sell for a loss (real or imaginary based on bubble prices) so they will become accidental landlords.
I do not know of a previous bubble burst anywhere that didn’t also see weakening in the rental market. The economic fallout from this massive bubble will not be avoided anywhere.
I don’t think any area will escape a general decline in rents. There was definitely a sharp run-up the past few years which outpaced increases in income. The recession will also decrease demand everywhere.
So, where the hell should I live? Wait to buy, wait to rent, lower Wacker is nice this time of year.
Jason,
In short move where you want and rent. Even if rents come down 10% during your lease you’re not taking a huge loss and can always move or renegotiate at the end of your lease.
Owning doesn’t make sense now on two fronts: prices are expected to decline in the near future and the expense cash flows of owning (all but mortgage equity) currently add up to significantly more than renting on most properties.
I’ve been looking at purchasing rather than renting due to the fact I have a dog – however, in the last few weeks I’ve seen an increase in the number of rentals that will accept dogs.
I take that as a concrete sign the rental market is softening.
Good observation, condoshopper. I have noticed that many stuck flippers in buildings that allow dogs still say no dogs in their rental listings. Regardless, I wouldn’t hesitate to make a rental offer that includes a dog.
They will be panting for your attention and rolling over soon enough.
I’m an owner living in 901 Madison. For those more knowledgeable than I, if Terrapin does go out of business, how will that affect current owners? The building is finished and the condo association is about to me handed over to the owners.
At the very least, warranty work would be questionable.
We bought from a flipper last summer, so the developer’s 1-year warranty doesn’t apply to us. Any other potential problems that people can think of?
Patrick: Check back tomorrow. I have more info on Terrapin’s troubles. It looks like, so far, it’s not affecting this building- but only their other property in Wisconsin.
The only other thing that might happen, if a developer does go under, is that another buyer or the bank might take over the unsold units and reduce the prices to get rid of them. But so far, there is no indication that that is going to happen in 901 W. Madison.
Terrapin only has about 20 unsold units in that building, I think.
Let’s say I were looking to buy a condo within the next 4-6 months and am currently considering the south loop among my top prospects. Would it be worth a shot to put in an extremely low offer since Terrapin is obviously struggling to sell these things? Like if they’re listing it at 200k for a one bedroom, why not shoot them an offer of like 150k, or maybe even just get really ballsy and offer up like 225k for one of the 2br/2ba units? Or would that just be taken as an insult and they would rather sell to a vulture fund for 30 cents on the dollar?
Looks like terrapin has told all of its owners that they are converting to rental…so they are giving everyone’s money back. I feel bad for the true long term owners who were going to keep their units for a long time and not flip. I guess it’s nice to use everyone’s money to construct their building. Can you say class action?
Now that Burnham Pointe has gone rental – if anyone is interested in staying in the general area. We are selling our unit in the building next door. We see some of the balconies of the Terrapin building, but we still have a decent view of the Michigan Av streetwall from our south window. check out our website!
I had invested in Burnham Pointe in 2006, but I just got a letter saying that the builders are going to give me back my money and the builders are planning on converting the building into a rental property. Is there anything that I can do other than accepting the money back from Burnham Pointe? Please advise?
I signed a purchase agreement with Burnham Pointe too. They informed me that they will be returning my earnest and upgrade money with interest (only about 1.5%), but they wanted me to first sign a release. They have been giving me the runaround for a few weeks now. Everyone there has a different story. Has anyone actually received their money back?
TerrapinSucks,
If they are nearing financial distress I’d sign that release and get your money back. In the event of bankruptcy you still likely would get your money back as I’d imagine you’d be a senior creditor, but it might take quite awhile. Months..possible a year or two.
Also I will note that I am not a lawyer, this is not legal advice and instead is my guy off the street advice.
I guess I am going to send in my agreement. I believe Terrapin Properties have run out of funding for the Burnham Pointe Construction. They still have a quite a few other buildings that are on the market.
Regards
Terrapin has been harrassing me to get my money back. There are too many rentaIs in that area? I don’t see what the benefit is. The place will go half rented. Is there any possibility that if they sell it to someone else, I could possibly still get the condo? Anyone have an idea? what really happens to the deposit?
Jamieson: They are bothering you to give you your money BACK?
I’m not an expert on this area (but others on the board may have more information) but if Terrapin goes completely under and the building is not bought by someone else, it’s possible you could lose your deposit altogether.
Different states have different laws, but in Florida, buyers are suing the developer of Trump Tower Tampa because he’s filing Chapter 11 but the deposits were spent in preparing the site for construction. Basically, there are no deposits to give back to buyers. One article said some of the buyers may get half of their money back. They’re all suing to get money that is no longer there.
The best thing for Burnham Pointe buyers, at this point, is just to get their deposits back and buy somewhere else. And be happy that they’re getting the deposit back.
My story about Burnham Pointe.
I signed a contract for a unit at BP back in July of 06. I had purchased the unit with the plans to stay in it for the long haul. I did a lot research before buying, and felt that Burnham Pointe gave more bang for the buck than any other project in the South Loop. I also loved that is was so close to the heart of Printers Row (and Target). I spent a bit on upgrades (the future renters will certainly be curious about why there are extra ceiling boxes and light switches), although one of the nice things about the building was that the finishes were to be pretty good to begin with.
Things actually worked out for the best. I was laid off from my job of many years in 2007, and ended up leaving Chicago. By the end of last year, I had begun to fear the worst… That I couldn’t get out of the contract, and would have to go through with it and then try to flip it. Earlier this spring, I was even prepared to just cut my losses and walk away from what I had already given them.
After hearing of the conversion to rental, I got pretty nervous about what was going to happen next. But, in May, I was notified by Terrapin that I would receive a full refund of my deposit, the up-front monies I paid for upgrades, and a small amount of interest. After signing the release, I had my money within a week. They were very responsive when handling the cancellation of my contract.
I am still glad it was this building that I signed the agreement with (I looked at several others), as I was able to get out. Had I bought elsewhere, I would likely have been stuck with a unit I could not sell… I was glad to get as much back as I did, and in the end, I lost less than $500 (loan origination and attny fees).
Looper:
Thanks for the update about what happened to your contract in Burnham Pointe.
It’s a great result for buyers in there. They got their money back and can buy a new property somewhere else (or not- in your situation.)
There are now three big rental towers on that street (close to the Target) and the Vetro is only 45% sold nearby as well. The Roosevelt Collection is in the midst of construction. Stay tuned.