Monday’s news that construction spending will reach $935 billion this year—the most since 2009—is one sign that the building industry is continuing to recover from the Great Recession. Another is the resumption of construction projects that were shut down in mid-build when financing and demand dried up simultaneously.
Those projects had to shut down when lenders pulled financing, according to Matt Tender, media relations manager at the American Institute of Architects. So many projects were halted that the AIA created an online “dating site” to match developers of stalled projects with financiers.
“When the economy took a nose dive, what we heard was that projects were losing financing from the banks,” Tender said. “With the economy not as bleak, lines of credit are opening up.”
A typical project is the Park West Tower, a retail, office and condo project in downtown Portland, Ore. Builders had finished digging the foundation and were just starting to put up steel in 2009 when the developer, TMT Development, lost access to the cash needed to complete Park West. TMT had no choice but to shut down construction.
The halt cost TMT in multiple ways. Office tenants who had pre-leased space backed out because Park West would not be finished when they were ready to move. Meanwhile, TNT was stuck paying interest on money it had borrowed as well as insurance, security and maintenance on the site.
TMT secured new financing for Park West in 2011 and construction resumed in 2013. Park West was originally planned as a 33-story structure, then downsized to 26 stories, and will be 30 stories tall when it opens its doors in 2016. A law firm that backed out of a planned lease when the building stalled has recommitted itself to occupying nine floors.
Financing is one of the obstacles to resuming a shut-down construction project, but it is not the only hurdle that developers must leap. When the company developing the $420 million Chateau project in South Lake Tahoe, Calif., lost financing in 2008, it left a 27,000-square-foot concrete hole in the middle of downtown. A new developer bought the site and resurrected the project, but got off to a rocky start when eight of nearly 100 concrete pilings had to be demolish and rebuilt because the state building code had changed twice. The developer also had to buy back parcels of land that the original developer had lost to foreclosure.
The Godfrey Hotel in Chicago’s River North neighborhood is an example of both the difficulties and the payoffs of resurrecting a troubled project. The original developers intended to build a 216-room Staybridge Suites property, but ran out money and went into bankruptcy. When the new developer took it out of foreclosure, the building was topped off, floor slabs had been poured, and electrical and sprinkler systems were installed.
However, the work was substandard. Crews had to replace the electrical and sprinkler systems and re-level slabs and stairs. Even the building’s pre-fabricated skin had to be torn off and replaced.
The Godfrey opened its doors in February. It is an luxury property with amenities that include a year-round indoor-outdoor bar and lounge and a penthouse patio with retractable roof. Guest rooms have 46-inch television and rent for more than $200 a night.
Developers and financiers do not leap at every opportunity to revive a stalled project. Each has to be evaluated on a case-by-case basis. Resumption of shut-down construction projects depends on what the real estate market will look like when they are completed, not when they were planned.
By J.W. Huttig