Pioneering green building hits old-style financial snags
CHAPEL HILL, North Carolina
CHAPEL HILL, North Carolina (Reuters) - The energy-scrimping efficiencies of a new $58-million residential and commercial space in the college town of Chapel Hill, North Carolina, create what might be the greenest condo building in America.
But for all its savings on electricity, water and raw material costs, this project of the future has become mired in the problems of the recent past.
The 217,000-square-foot building, known as Greenbridge, came in $1.6 million over budget in a market weakened by the national real estate bust. Designed by William McDonough and Partners, one of the nation's premier advocates of green buildings, the recently opened complex now faces foreclosure.
If such a building can't succeed in progressive Chapel Hill, home to the University of North Carolina and part of a regional economy driven by high-tech research, can large-scale green designs succeed anywhere?
"I would be afraid that the broader market, regional or national, would think this project is in foreclosure because it's green. That would be a mistake," said Chris Wedding, who teaches about green building at the university's Kenan-Flagler Business School.
Wedding, who attended Greenbridge's groundbreaking and has followed its financial troubles, said the project faces foreclosure mainly because it went up during a recession and developers made costly design and construction decisions.
Tim Toben, one of five local partners who own the building and collectively face $15 million in losses, said Greenbridge had found a market and was briskly selling units.
But while Greenbridge pushed the envelope in design, Toben said its principal lender, Bank of America, still practices one-size-fits-all lending: pay now or lose everything.
"We certainly have not been treated any differently than a Miami condo project," Toben said.
'DEATH SPIRAL' TOWARD FORECLOSURE
Named one of the top 10 green housing developments in the U.S. by Natural Home magazine, Greenbridge has roof surfaces planted with vegetation that provides wildlife habitat and reduces stormwater runoff.
Recycled products were used throughout the building, and more than 50 solar thermal panels on the roof of its 10-story tower will provide over 15 percent of its hot water demand.
The development, which includes mostly vacant office and retail space, has 97 condominium units ranging from $250,000 to more than $1 million for penthouses atop its two towers, the second of which is seven-stories.
Before the project broke ground in April 2008, then-Bank of America President Ken Lewis cited Greenbridge as an example of his bank's commitment to green building.
But in August 2010, with 37 units sold and another 15 under contract, Bank of America refused to pay contractors for cost overruns. That triggered what Toben called "a death spiral."
"It feeds on itself. The liens begin to scare the real estate community and the number of showings decline and you can't close anything." he said.
Now the bank has moved to foreclose, with a sale set for June 27. In addition to the $28.7 million mortgage it holds on the property, Bank of America is seeking $456,000 in back interest and is adding interest at the rate of $3,400 per day.
Bank of America said it has already increased the mortgage once, and the borrowers failed to pay a $1.6 million equity deposit as required by the terms of that increase.
"We have been working with the borrowers for some time to help them resolve their financial issues," says Shirley Norton, a bank spokeswoman. "We continue to be in discussions with the borrower and are hopeful of resolving the matter."
State Senator Ellie Kinnaird, a Chapel Hill Democrat, welcomed Greenbridge's plans to limit its carbon footprint and bring more residents downtown.
She thinks the developers should have been given more time to work out their finances, particularly in light of the federal bailout of banks, including Bank of America, that overextended themselves during the housing bubble.
"How can these people who drive the economic bus into the ditch and then get $10 million bonuses not realize what they are doing to our community?" Kinnaird said. "What good does it do to have a big building in foreclosure?"
Supporters of efficient buildings said the Greenbridge story is ultimately more about greenbacks than green design.
"All real estate ventures carry risks, and we do not think that sustainability attributes make projects more risky," McDonough and Partners said in a statement.
Wedding, the professor, said Greenbridge was on the right track at the wrong time.
There is a growing demand for green buildings. A 2010 report by McGraw-Hill Construction, a leading source on design and construction trends, said the green building market size is expected to double to $135 billion by 2015.
Despite the recession, the value of green building construction starts grew by 50 percent from 2008 to 2010 and represented 25 percent of all new construction activity in 2010, the company said.
"When you look at national trends, you would easily understand why developers of this project would believe there was a market," Wedding said.
Toben, who made a fortune in 1999 when he sold his share of the data mining company, KnowledgeBase Marketing, for $10 million after taxes, stands to lose most of it in an investment that was supposed to be about savings.
"I've ridden the roller coaster of capitalism," he said. "I'm ready to get off."
(Editing by Colleen Jenkins and Jerry Norton)
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