Century Plaza Goes BK

The developer of Century Plaza finally filed for bankruptcy last week; no big surprise…except that it took so long to happen.  So what’s likely to happen next?  In our opinion the value of the note just went down.  AZCentral.com reported that M&I Bank, the construction lender, claims that the building is worth approximately $19M (we think the value is closer to $12M but let’s use $19M for now for the sake of argument).  IF Century Plaza is worth $19M then there is trouble on the horizon.  Why?  Because M&I Bank is owed approximately $42M and other parties are owed an additioanl $3.5M, so things aren’t adding up.  To make matters worse only 40 or so of the remaining 141 condos are actually finished.  So, if an investor wants to buy the building with the intention of completing it, selling condos, and making a profit there are HURDLES ahead.  The investor would have to come to some sort of an agreement with M&I Bank, namely M&I would take a big loss on the $42M owed, the investor would have to settle with the other parties who are owed $3.5M, the investor would have to finish the condos, and figure out a way to sell high rise condos at a price that would compete with all the other high rise condos currently being sold by other lenders that acquired the condos via foreclosure, AND make a profit.  Oh, and don’t forget, now that the developer filed bankruptcy the investor would have to feel very comfortable that he or she would actually get the property in a reasonable period of time or be able to sell the note at a profit even IF they have to fight it out with the developer in bankruptcy court. 

The reason I question the claim that the building is worth $19M is that at that price and with 141 condos remaining that equates to a value of approximately $135,000.  This may sound cheap until you know that only 40 or so of the remaining condos are finished, that there are rumored to be infrastructure issues (namely problems with one of the two chiller units and rumored sewer issues), the previously mentioned debt to value disparity and potential legal battles with the developer, AND the fact that whoever buys the note or property will want to make a profit in a currently stagnant (at best) high rise condo market!  $19M seems high to me.

Having said all this I really do want to see Century Plaza succeed.  I really like most of the floor plans, the common areas are fantastic, the location is one of the best in the Valley (that is if you are into using light rail and walking and enjoying great (non-corporate) restaurants and bars etc…) and more.  I just think that it will be a while before the dust settles and I feel confident enough to recommend that people buy there.