Condo Conundrum

From: The Fort Worth Business Press

July 12, 2011

Lawsuits continue over condo construction

Montgomery Plaza, photo by Glen E. Ellman

 

By P.A. Humphrey

To some, Fort Worth’s Montgomery Plaza project is known as the pioneer retail development along West Seventh Street, a great place to shop or grab a meal, but there’s a growing list of locals who think of it quite differently. That group is owed millions by some of the project’s developers.

Several local construction crews and real estate businesses are owed big money by the developers of the Montgomery Plaza condos, OMP Development of Plano. And as time passes, the lawsuits between OMP and local companies have continued to fly.

“My company was shorted roughly $964,000, to try to work through and stay in business,” said Richard Skipper, president of mechanical contractor SkiHi Enterprises Ltd. of Fort Worth.

And Skipper isn’t the only one to say he is owed by OMP.

In 2006, OMP Development of Plano, a real estate company co-owned by Dallas-based Weber & Co. partners Waldemer Maya and Douglas M. Hickok, borrowed $75 million from Citibank to buy the upper seven floors of the massive building, with plans to turn them into high-dollar condominiums catering to up-and-coming young Fort Worthians.

“People are going to think they’ve walked into Shangri-La,” Maya told reporters then.

But by the end of 2007, the bottom of the real estate market had fallen out, 144 of Montgomery Plaza’s 240 units remained unsold and Citibank called in the note to OMP – and OMP defaulted, leaving contractors unpaid.

“Citibank had made the loan to OMP, based on them selling so many units. Well, they didn’t sell,” Skipper said.

“OMP blamed it on the contractor, saying they didn’t finish on time, but you know what happened in the market about that time,” he said. “They didn’t sell because nobody was buying.”

In all, the contractors were left holding the bag for about $6.5 million, he said.

“That’s not pocket change,” Skipper said. “Me, the electricians, the cabinet guys, all of us just took that hit. I don’t know if we’ll ever get any of that money.”

In June 2010, Thos. S. Byrne Inc., which oversaw the interior finish-out of the condos, and about a dozen subcontractors filed liens against the property, saying they are owed nearly $6.l6 million for labor, materials and services.

Also filing liens were Trinity Drywall Systems in Fort Worth for $713,742, SkiHi Enterprises for $964,829, ICI Construction in Addison for $486,386 and Anton Cabinetry of Arlington for $446,142, court records show. Filing mechanic’s liens could have led to the contractors posting the property for foreclosure and forcing a sale.

“Mechanics’ liens and contractors’ liens are a very specialized area of real estate law,” said Stephen Alton professor at Texas Weslyan School of Law. “But, generally, if these liens are attached to the property after the existing mortgage is already in place, when this existing mortgage lien is foreclosed, those mechanics’ and contractors’ liens would be wiped out.”

In July 2010, OMP filed suit in state district court in Tarrant County against Byrne, SkiHi and Anton Cabinetry, alleging that Byrne had filed the lien in error because the two sides were already in arbitration. Under the terms of the contract, Byrne and its subcontractors had agreed to keep the project “lien-free,” the suit claimed. It accused the three of “conspiring” to cause injury to OMP and to the project.

“Byrne’s actions have caused and will continue to cause a chilling effect upon the potential sales activity at the project, as Byrne’s behavior will chase away would-be bona fide purchasers,” the suit says.

A countersuit soon followed, with Byrne denying OMP’s allegations and contending that the developer owed $6.6 million for work done in the redevelopment and an additional $247,879 for repairs of water damage sustained in several units, hallways, a fitness center and a storage room after an ice storm in December 2009.

In May, 2010, OMP partner Wally Maya told Byrne it could not pay because Citibank was holding the insurance check that covered the work, one suit says. Byrne is also suing Citibank.Both Citibank and OMP have denied receiving the insurance money for repairs.

OMP also sued at least one subcontractor, accusing the subcontractor of libel for a published interview he gave about the legal mess, which OMP claims spooked potential condo buyers.

In addition, Byrne President John Avila and his wife, Jane, who bought a Montgomery Plaza condo, sued OMP over their contract, alleging that the developer failed to refund them more than $750,000 in “custom finish-out costs.”

A grand vision

When the renovation of Fort Worth’s historic Montgomery Ward building on West Seventh Street was announced in 2004, it was heralded as the “crowning jewel” in the gentrification of the Upper West Side, a once-neglected stretch of aging buildings and small frame houses linking downtown with the Cultural District.

Despite protests from historic preservationists, and with the help of a city tax abatement, the eight-story behemoth was gutted and a six-story hole carved out of the facade’s center, opening up a brick-paved plaza with space for outdoor dining, parking and shoppers. Stores and restaurants opened at street level and pricy condos were laid out on the upper floors.

“An example of preservation in the context of urban redevelopment,” the North Central Texas Council of Governments gushed when it awarded developers of the 46.19-acre Montgomery Plaza, Weber & Co., one of its 2007 Celebrating Leadership in Development Excellence Awards.The eight-story Montgomery Ward building was built in 1928 by Thos. S. Byrne Ltd., the same company that later contracted to finish out the interior during the renovation, to be a major retail outlet and mail order warehouse near downtown Fort Worth.

It became a Fort Worth landmark, surviving a 1949 flood that saw water rise to the second floor and the 2000 tornado that ripped through the city’s West Side.

So when Montgomery Ward announced in 2001 that it was going out of business and putting the building up for sale, long-time residents and historic preservationists were united in their desire to save the building.

It sat unoccupied for two years, until 2003, when Kimco Real Estate announced with fanfare that it had bought the site with Weber & Co. as its development partner and planned to renovate it, not tear it down. Weber developed the first floor of the structure into shops and restaurants.

In 2006, OMP Development purchased the upper seven floors of the building for the planned high-end condominiums and by 2007, the final finish-out on the condos had begun.

The 1,000- to 4,600-square-foot condos were listed from the mid-$200,000 to $1.6 million – pretty pricey for Fort Worth buyers. Still, in March 2007 the developers announced that more than half of the luxury condos were spoken for.

Then the bottom dropped out of the housing market. Buyers stopped plunking down deposits on the condos or couldn’t get loans to buy them. America’s worst recession since the Great Depression began in December 2007, according to the National Bureau of Economic Research, although some economists believe it started earlier.

A year later, on Dec. 30, 2008, the Case-Shiller home price index reported the largest drop year over year in its history. Plummeting home values, tightening credit, stricter mortgage requirements, rising unemployment and the Wall Street flame-outs followed.

Not a good time, if ever there was one, to sell high-end condos in North Texas, said Fred Forgey, executive director of real estate graduate programs at the University of Texas at Arlington.

“Over-priced condos hit the market when prices were not stable,” Forgey said. “Financing for these units was scarce, even to those with reasonably good credit histories.”

The fate of the property

With the liens pending, Citibank sold the note last December to Dallas real estate company Wealth Diversified Fund, owned by Maya associate Cary Platt. Wealth Diversified Fund transferred the note to Lowry Donkey Farm, deed records show. Lowry Donkey Farm, a limited partnership of Granbury real estate developer John Femrite, assumed the note and foreclosed on the building, voiding the liens the contractors held and making them uncollectable.

On Feb. 1, 2011, the 144 unsold condos were sold in a foreclosure auction for $18 million to Wealth Diversified Fund, the bank’s original buyer. The company was the only bidder.

Platt could not be reached for comment on this story. OMP Development partners, Doug Hickok and Waldemer Maya, and Platt are officers in One Montgomery Plaza Residential Condominium Association, which registered with the state in March 2007, records show.

Since then, Fort Worth subcontractor Wadleigh Tile has sued the new owner in State District Court in Fort Worth. Wadleigh wants $213,824 it says it is owed for installing the floors in condos and hallways throughout the historic building.

“The bottom line is the majority of the money owed is from a insurance incident: Pipe busts, floods multiple floors, insurance company pays, owner takes the money, doesn’t pay the bills, allows bank to foreclose on property voiding all liens, then buys the property back under a different name, lien free,” owner Kip Wadleigh wrote in a message posted on the website of Hardwood Floors Magazine. “Got to do what I can do.”

Some players in the Fort Worth development community say Maya and associates should have seen what was coming.

“A project like this takes years of planning and most developers around here don’t have the experience it takes,” said one developer, who asked that his name not be used. “This isn’t building single-family homes or an apartment complex. You don’t have to have a crystal ball, but you do have to know the markets.”

There’s plenty of blame to go around, Skipper said, but it’s hard for small business people like him and the other subcontractors to weather a hit like they’ve taken.

Today, Montgomery Plaza’s marketers continue to tout the initial vision of the redevelopment: “Montgomery Plaza is a Fort Worth icon. With a striking design and a remarkable past, Montgomery Plaza has become the signature address for a new and creative community in the heart of Fort Worth.” Several units are up for rent, at $2,500 and up a month.

“That company declared bankruptcy and bought it back,” said one subcontractor, who asked that his name not be used out of fear of a libel suit. “Bought a $50 million property for $18 million and did away with all the liens all the subcontractors had taken out. Hard to believe that’s legal in the state of Texas, but I’m told it is.”

 

 

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