by Sean McManus
Staff Writer
Over two years ago, when Mike Langton coughed up about $200,000 of his own money to renovate the W.A. Knight Building, the managing partner of LB Development didn’t think getting the remaining funding — some $1.6 million — from a local bank would be much of a problem. But it was.
“We were turned down by eight local lenders,” said Langton, whose 12 units on West Adams Street are slated for completion later this year. “We finally found out that GMAC out of Philadelphia was pursuing downtown loans for revitalization projects and we got the funding.”
As it turned out, the Philadelphia office of GMAC approved the loan, but it was underwritten out of its Chicago office. Throw Langton’s Miami lawyers into the mix, and suddenly it’s a pretty convoluted deal.
“The whole process was getting dragged out,” said Langton. “It was just too complicated.”
By that time, Langton was starting to think he would never get funding for his downtown lofts, First Union National Bank started a lending division in Jacksonville called the Community Development Finance Group. They recruited a seasoned community banker, Percy Williamson from Bank of America, and charged him with putting the power of the Southeast mega-bank name behind the revitalization of downtown as well as other areas of Jacksonville that had been neglected.
“At first we had to bill the project as ‘live-work lofts,’” said Langton, “since there was absolutely no other residential lofts anywhere near us that could be used as a barometer for a buyer’s potential interest.”
At the same time, Langton secured $600,000 in loans from public sources — the Housing Finance Authority and the Jacksonville Economic Development Commission — both of which will only charge Langton two percent interest. That gave First Union the momentum it needed to figure out a way to underwrite the W.A. Knight Building.
“Mike ended up accomplishing two things that are required for a community development loan,” said Williamson. “He is going to put retail on the ground floor, which means jobs. And, he’s going to set aside a percentage of the lofts for low to moderate income housing. So it worked.”
According to Williamson, what distinguishes a community development loan from a regular commercial real estate loan is the flexibility of financing options and the competitive of the rates.
“First Union has an interest in enhancing our city’s core,” Williamson said. “And certain specialized loan groups are able to use creative financing to accomplish that.”
First Union approved $1 million for the W.A. Knight Building, bringing the total financing to the $1.8 million Langton needed.
Needless to say, Langton refers to his “friends at First Union” and is working with that bank on a new project in Gainesville. Langton said he already has one loft rented and about 200 people on a list who say they’re interested in the others.
But Langton’s ordeal, and eventual conquest, is indicative of a general shift in the perception of local lenders toward an area which still doesn’t actually have any tangible proof that residential lofts downtown are going to be successful.
“Until the first resident moved into Berkman Plaza, the only thing lenders really had to go on was the credibility of the developer,” said Paul Harden, a local land use and zoning attorney who works with developers to get incentives from the City. “Lenders by definition are not aggressive people. They want to know they’re not going to lose money and downtown has no history for comparison.”
Harden, who recently completed his own downtown redevelopment project — the Saxelby Building on Hogan Street — which is already at capacity mostly because the law firm of Cole, Stone, Stoudemire moved in, said that they only reason he pulled it off was because he was able to personally guarantee the loans.
“But I’ve seen the feasibility studies,” he said, “and I’m optimistic about downtown’s potential.”
Harden said that out-of-towners, who are partly responsible for downtown redevelopment — Berkman Plaza is owned by an Atlanta firm — have a more enthusiastic vision than people from Jacksonville do.
“They’ve seen these kinds of projects work in Tampa and Orlando,” said Harden. “And they’re confident we’ll reach an appropriate density.”
Don Hooper, who works in the commercial real estate division of First Union, said that when deciding whether to underwrite a loan, the bank performs the same market analysis regardless of whether the property is downtown or not.
“What we do as lenders really depends on when we get brought in,” said Hooper. “If it’s early, then we can be advisors in the project and tell you soon if it’s not going to work.”
He said there is one project he’s currently working on, outside of downtown, where the developer had a huge commercial complex going in where there really shouldn’t be one.
” They spent all this money on appraisers and design and it’s a bad location,” said Hooper. “Basically, we are looking for the level of demand, whether it’s the right product for the location, the quality of the project, and who is behind it. We want to make sure that the parties involved can weather storms.”
Williamson, who coordinates efforts with the City as well as with the federal government for projects located in empowerment zones, said that downtown redevelopment is not for novices.
“You’ve got to get a lot of ducks in a row for this to be successful,” he said. “If you’re not an experienced developer, you need to partner with one.”
And Hooper said he and First Union are “bullish on downtown,” and they will continue to pursue projects large and small.
“The reason why you haven’t heard a lot about banks having major real estate problems lately is because we’re actually dealing with a pretty disciplined market in Jacksonville,” said Hooper. “Developers don’t want to see empty buildings as much as the banks don’t. And both groups have been waiting to push forward with projects until they know what will work.”
Hooper also said the chicken and egg argument over housing and retail is a no-brainer.
“Housing comes first,” he said. “When you’ve got people who want to eat and shop, the restaurants and stores follow.”