Talks will begin soon between the troubled downtown Des Plaines Metropolitan Square’s management and a Texas-based lender to modify a loan the latter firm has just acquired.
The negotiations, between Mike Neises, owner of NEI Management and Development of McHenry, and World Class Capital of Austin, will be aimed at reducing the debt on Metropolitan Square and enabling World Class to come out ahead financially. However, if talks fail, foreclosure is a possibility.
World Class Capital acquired the distressed $17 million loan for about $6.5 million through a transaction from LNR Partners, LLC, said Neises, who manages Metropolitan Square for current owner Schwinge Family, LLC.
Neises will negotiate with Nate Paul of World Class Capital. Paul and his father, Dr. Love Paul, oversee the loan on behalf of their company.
“Right now have a new lender,” Neises said. “He bought the note for $10 million less than what we owe on the property. The person bought property with a distressed note, a non-performing note. [There is] no way the property can sustain its debt with rents [being charged].”
Metropolitan Square was purchased by Schwinge Family, LLC in 2007, a year after opening, for $12.5 million from DBSI Group of Boise, Idaho. The new owner assumed a $17.6 million loan at the time.
The 121,383-square-foot commercial-residential complex includes 135 condos.
But with high vacancy rates throughout Metropolitan Square, Schwinge recently appeared to be in danger of defaulting on the loan, which passed through several financial institutions and finally into World Class Capital’s possession.
Older property seen as more economical
A combination of the bad economy, high rents and higher taxes in Metropolitan Square property have prompted potential occupants to instead choose older buildings nearby for lower overall costs.
“People are only looking at price,” Neises said. “Because it’s a renter’s market, I can’t get a premium.”
He said there are three possible outcomes. Neises and World Class Capital can agree on a higher loan figure between $6.5 million and the original $17.6 million, and then getting yet another lender to assume the loan. That action would result in a profit for World Class Capital and debt reduction for NEI and Metropolitan Square.
Or, World Class could keep the loan at a higher rate, but still come out ahead financially by earning more interest at the higher dollar amount. Failing those two scenarios, foreclosure could occur.
Splitting the difference on loan value
“I could possibly purchase it back somewhere in between; he makes money and I have less debt,” Neises said. “We have to talk soon; otherwise we start defaulting. [Loan modification] allows us more flexibility on rent. We could have a rent sale because the overhead goes down. It has to be a financeable amount.”
Messages left for Love and Nate Paul were not returned at publication time.
New developments in the Metropolitan Square loan saga have flown under the radar since the issue flared up in mid-autumn. Michael Bartholomew, director of community and economic development, said he had not heard from the involved parties recently.
“I don’t know if they’ve restructured debt,” Bartholomew said. “That’s what we’re hopeful will happen.”
Neises said the present financial arrangement must change quickly.
“The government is getting more money in taxes than I am in rent, and where’s the logic in that?” he said. “The government is not a 50 percent partner in this.
“The biggest problem in leasing space in Metropolitan Square is because it’s a newer center, it’s forced to compete with older buildings with lower tax bills.”
Closings of Coldstone Creamery and Cheeseburger in Paradise earlier in 2011 only aggravated the high vacancy problem.
Neises did sign up an All-State insurance broker to occupy vacant space recently. He also has started preliminary talks with another possible commercial tenant. However, “for lease” signs liberally mark storefronts all over Metropolitan Square.