Amid the condo boom, one paralyzed project

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June 14, 2004 // UPDATED 2:03 pm - April 25, 2007
By: Sarah McKenzie and Scott Russell
Sarah McKenzie and Scott Russell

Stalled for almost a year, The Reserve shows few signs of life

In a fast-growing neighborhood defined by its loft and condo construction, one project stands still.

A construction crane has sat motionless for a year at The Reserve, a proposed eight-story, 108-unit condominium development at 360 N. 1st St., that was to open this summer.

Crews started working on the high-end North Loop condo tower in January 2003 and halted indefinitely six months later. For nearly a year, the project has floundered, a paralyzed skeleton.

A chain link fence corrals the site. The project's sales office remains tucked along 4th Avenue with postings on the door listing a sales office number for information. Call the number -- or any number affiliated with The Reserve -- odds are you'll get the following response: "No comment," or "I don't know what's going on."

Still, something may be cooking.

John Gass, a spokesman for New York-based Lehman Brothers, the project's lender said, "I have no comment at this point but will have a prepared statement to release later this month," giving no hints about what might be in store for the project.

Some local developers have been mentioned as Lehman's possible new partners, including Minneapolis residential developer Arnie Gregory, a former principal of Hunt/Gregory, the developer behind The Village at St. Anthony Falls, 100 NE 2nd St., a mix of townhomes, lofts and brownstones on the East Bank.

"I'm interested in [the Reserve]. A lot of people are interested in it," Gregory said.

How did we get here?

The Reserve started off as a joint venture of Chicago-based Bejco Development Corp. and Lehman Brothers. The partnership behind the project, The Lofts of Minneapolis LLC, has since restructured. The details have not been made public.

The Reserve isn't the first Bejco condo development to face problems.

In December, Lehman Brothers took control of an upscale Bejco condo development called Prairie House in Chicago's near south side, according to the Chicago Tribune.

The lender held a foreclosure auction on unsold condos in the 14-story condo tower after developer B.J. Spathies, Bejco's CEO, defaulted on a $9 million loan, the Tribune reported.

Lehman Brothers has since questioned Spathies' handling of $3.6 million in funds for Prairie House, including earnest money put down by buyers for condo upgrades and deposits, a news account said.

Atlanta developer Norman Radow now handles the Prairie House development.

Spathies and Radow did not return phone calls.

Thomas Melchior, a multifamily-real-estate analyst for Larson, Allen Weishair & Co., said the pricey Reserve condos came on the market when Downtown was already saturated with high-end housing.

"My view of the Reserve situation is that they priced their units too high in a market that has already had a substantial inventory of high-end product. Their location was not as a good as the riverfront projects ... and they lost out to these other projects that were appropriately priced," he said.

"The high-end market is still very slow, and any new projects will need to carefully evaluate their pricing and positioning in order to be successful," Melchior added.

Chicago-based Garrison Partners Consulting has worked on The Reserve's sales and marketing effort. Last September, Garrison Vice President Steven Maher said he was optimistic construction would resume and be complete by fall 2004.

"I'm very confident the project will go forward," he said last fall, adding the firm had sold about six units among the 108 available.

When the sales effort began in 2003, prices ranged from $262,000 to $1.5 million for the penthouse.

Earlier this month, the firm didn't sound as reassured.

Sandi Lent, a principal for Garrison Partners, said recently: "We're not involved in the project at this point. I don't know what's going on."

The project's original architect, Bruce Knutson Architects, 540 N. 3rd St., and construction company, Eden Prairie-based Witcher Construction Company, also had no updates to report.

Bruce Knutson said, "It's just on hold. Anything else I would say would be conjecture."

Meanwhile, Witcher President Ken Styrlund directed inquires to Lehman Brothers in Atlanta.

City's role

The lengthy halt in construction doesn't appear to violate any city regulations -- for now.

City officials have some leverage to push the project forward and compel limited site improvements, such as removing the sales trailer from the public sidewalk.

Assistant City Attorney Henry Reimer, who only recently got involved in the situation, said possible city actions ranged from pulling building permits and using nuisance abatement ordinances to taking control of the property itself.

Witcher Construction did foundation work on the Reserve; its name is on the paralyzed crane. Witcher secured a temporary building permit last July 1 to complete the eight-story, 108-room condo. The condo construction has not started -- and cannot start -- until Witcher pays the $264,764.66 permit fee.

Legally, the city could pull that permit and others 180 days after work has stopped, a deadline that has come and gone.

Pulling the permits would have little practical impact, however, other than adding to Witcher's costs if is it has to reapply in the future. Pulling the permits doesn't get the work done or the fence down, Reimer said.

The City Council could hold a public hearing on the matter and if the building is found to be a nuisance, the city could:

- Order demolition of the building. If the owner fails to comply, the city could demolish the work and assess the cost against the property taxes.

- Order the owner to complete construction or rehabilitate the property. If the owner does not do it, the city could rehabilitate the property and assess the cost on the property taxes.

- At the extreme, the city has the power of eminent domain -- it could force a land sale and finish the project itself.

Reimer said it was unlikely the city would take such drastic measures.

"We think we will do a better job if we stick with our core functions, and let

people whose job it is to build buildings, let them build the buildings," Reimer said.

Reimer said city officials are reluctant to use their lesser powers, too, hoping that a buyer will come forward. "We don't want to jump in while there is the prospect that the market will provide the solution," he said.

The city's biggest short-term concern is keeping the project site safe, officials say.

Al Olson, the city's manager of inspections services, said a building inspector checks the site weekly and drives by on a daily basis on his way to inspect other sites. The Reserve site is secure, surrounded by a six-foot high fence, he said.

"We haven't had any complaints as far as people breaking in, setting fires or dealing with the site from a vandalism standpoint," Olson said.

The city's next moves are unclear, and it appears the fence could stay up for a long time. Olson, an 18-year city employee, said he couldn't recall a project of this magnitude stopping at this stage. "We are treading new water," he said.

The city has no firm time line for taking action, but Reimer said if a buyer doesn't step forward, "We will have to step in and do something. We cannot just have a partially-constructed building stand there indefinitely," he said.

Olson said he had heard that Coon Rapids-based Shamrock, which developed the nearby Rock Island Lofts, 111 4th Ave. N., was interested in the project; Shamrock President and owner Jim Stanton said he was not.

Resident views

For those living near The Reserve, the construction hiatus has generated mixed reactions; some see an eyesore, other delight in a few more months of an open river or Downtown view.

Some residents are indifferent.

Nicole Thorson, a tenant at River Walk Apartments, 400 N. 1st St., sat outside the apartment building on a recent sunny afternoon, directly across from The Reserve.

She just moved to the North Loop after living in the Laurel Village apartment complex, 1400 Laurel Ave.

"It's not beautiful, but it doesn't bother me," she said.

Another Reserve neighbor, Steve Earnest, a resident at Lindsay Lofts, 408 1st St., agreed.

"At least we can still see the river," Earnest said while he stood with his bike on the corner of 1st Street and 4th Avenue.

While some Renaissance on the River residents say they're pleased to keep their Downtown views months longer than expected, one resident of the 9 4th Ave. N. complex sounded more frustrated.

"How long will we go with this eyesore, trash build-up situation?" said Steven York. "It sure would be nice if someone would step forward and complete the project, or if not, move that trailer off the sidewalk, reopen the sidewalk, reopen the bike lane, put in some decent lights and somehow cover up the dirt pile of the one-eighth-finished building on the corner there," he said.

Peter Brown, the new chairman of the North Loop Neighborhood Association, said he hopes to see activity start up again soon, adding it's not unusual for a project to remain incomplete for some time.

"I don't know much about the project but the primary concern, obviously, is that if it stalls for financial or legal reasons for a significant period of time, it will become a major blight on the part of the neighborhood immediately surrounding it," he said.