There have been a couple articles and at least one television report about the recently filed Notice of Trustee Sale on Summit at Copper Square high rise.
The purpose of this post is to clarify some points made and to further explain others.
It is our understanding that the original construction money consisted of two loans; one for $54M and the other for $10M. The second loan was originally funded by a separate party but was ultimately refinanced by FNBN, the lender on the first note. FNBN ultimately went under and was “taken over” by the Feds but prior to that happening the developer of Summit at Copper Square sold 91 (not 74 as reported in the Business Journal) of the 165 condos and paid off $40M of the $64M. When FNBN went under the value of the notes were approximately $28M ($64M – 40M + 4M interest = $28M). Upon the collapse of FNBN, the FDIC bundled a large number of outstanding notes and auctioned them off. The Summit at Copper Square note was bundled into a $700M pool of these notes. Stearns Bank (of Scottsdale) paid about $161M (or ¢23/dollar) for the $700M pool. To do so, it came in with approximately 20% of its own money and used government backing or funding for the remaining 80%. If we apply the ¢23/dollar formula to the $28M remaining on the construction loan then we know that Stearns paid approximately $6.4M for the Summit at Copper Square note. What’s crazy is that it got the $28M note for $6.4 but only had to come up with $1.288M of its own money to do so (remember the government financed 80%).
According to David Wallack, developer of Summit at Copper Square, he is working with Stearns to pay off the note. Also, according to Wallach, he and Stearns have a good working relationship and that Stearns filed the Notice of Trustee Sale as a matter of procedure. Notices of Trustee Sales can be postponed so the action on the part of Stearns is not necessarily ominous but it certainly gets everyones’ attention and keeps pressure on Wallach.
Something to keep in mind is that with Stearns buying the $28M note for just $6.4M and only $1.288M out of pocket, the bank is in a VERY safe position. And with such a low basis Stearns can sell the $28M note for just $6.658M and make a 20% profit (not counting expenses). I would think that David Wallach has an opportunity to get himself into a better position than he was in. Afterall, if he can put the money together to buy the note from Stearns he would effectively reduce his debt by over $21M!!! Just as importantly, by reducing the debt to approximatley 24% of what it was, Wallach has a chance to make some money when all is said and done. It’s true that Stearns might want to see if it could make even more money on the note but I’d take 20% profit in today’s market all day long; heck I’d take 10%. So, don’t be surprised if Wallach can structure a buy-out of the note.
At WeKnowUrban we are waiting and watching what’s going on at Summit as well as the other newer high rise buildings. There are definitely issues to be aware of but all is not as bad as our local media would have you believe. Remember, sensationalism sells. I’m not saying that the press is sensationalistic for the sake of getting eyeballs but the “stories” rarely tell the whole story. I’m also not saying that we “know it all” but the fact that we study high rise and loft living every single day does give us some advantages over the folks that are reporting the demise of a high rise condo one day and covering a chili cook-off the next. Come to us if you want to know what’s going on in urban living in Phoenix, Scottsdale or Tempe.
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