Chris Schoen: “We will finance this project.”

Tonight’s Fort Wayne City Council meeting featured among other items, an update on Harrison Square. Deputy Mayor Mark Becker and Steve Brody (Harrison Square Consultant) spoke first stating the focal point of the presentation would be the condominium/retail component of the project.  They then introduced Chris Schoen (Barry Real Estate) and Bill Martin (Martin Goldstine Knapke).

Mr. Schoen stated that the council had asked for specifics and that he was going to give them.  He reiterated Barry Real Estate’s continued commitment to the project.  At this point, there are five condominiums under contract, meaning the deals have been closed.  He admitted this is behind where they wanted to be at this point, but that there are a number of things causing this.  He went on to say there is still interest in the condos, with some expressing interest in multiple units. 

Early on, a reservation process was put in place.  They are continuing work to convert those reservations into contracts.  Others have come into the office expressing interest, but they are taking those directly to contracts, bypassing the reservations.  He said about fifty people are still interested at this point.  They are in the process of looking at marketing and other things to increase that number.

The architectural drawings and condominium documents are completed as well as construction of a model’s unit.  They will be launching some special targeted events and advertising shortly. 

He then went on to talk about the financial underwriting of the project.  He stated that the world is very different today than last year or even two years ago and that the capital markets have substantially changed.  Several “term” sheets had been negotiated with several lenders, which for one reason or another then didn’t finalize.  In response, Barry Real Estate has reforecasted their underwriting. 

Condominium today is a bad word in regards to just the financing markets.  For people looking to finance projects, if it has a condominium piece, it’s just become a very difficult component.  We have really not begun to see a recovery in the capital markets, but having said that, y’all picked Barry Real Estate and Hardball Capital as part of this project.  You did that because of our ability to get things done.  Your Mayor at that time, your staff, came to our office, saw what we were doing, looked at our projects, they really did their homework.  We will finance this project - again, just want to reiterate our commitment to the project. 

He went on to say that it will require a great deal more equity than they first thought.  When they first began putting the package together, they had planned on putting in about 25% of their own equity as investment.  (25% of the investment in the building, roughly $20.3 million.)  Meaning that 75% of the condominium’s and retail space would have been leased.  Now, he stated they are now in the process of finalizing their financing package in the next ten days.  They are looking at putting about 50% of the initial $20.3 million investment into the project, out of their own equity.  

They have 3 or 4 restaurant groups interested in the retail space and an executed Letter of Intent they are trying to move to a lease.  He then went on to address issues of timing.  He stated the projected construction period is 10 to 11 months.  To hit opening day of the ballpark, it would require a start in the July 1st to August 1st window.  He stated that a more likely start time window is August 1st to September 1st.  They are looking at ways to expedite the 10 month construction period.

We remain fully committed to the project and it is a Condominium project, not an Apartment project.  We continue to have the highest hopes for the project.  This project, as we’ve talked to you about, is really gonna change the face of Fort Wayne.  The condominiums are a new product.  [Editor’s Note: New to Fort Wayne?]  I touched on earlier, people are having to visualize and step out a little bit.  It’s taken a little bit of education and we believe there’s tremendous demand.  You saw it when people jumped on the reservation list early on and we just need the public to know this phase 1 is going to have the best views, it’s gonna be the cheapest priced product.  But we’re really excited about where it’s headed.

A question from Tom Didier about what was next.  Schoen responded that they are going to be proceeding with the financing of the project immediately, and at the same time have conversations about how quickly the project can be built, and also finalize the condominium and retail leases – all this simultaneously.  He estimated this process to be about 45 to 60 days. 

Tom Smith asked about the cost of the condo units and was told $150,000 to $300,000+ per unit.  He also asked the retail leasing rate and was told $27 to $30 per square foot.

Then, the following exchange between Shoaff and Schoen which starts at the 1:29:45 mark on the mp3 file:

Councilman John Shoaff: I’m a little confused here.  You’ve sold five condos, you’ve got 62 to sell [unintelligible] you’ve got to sell half and all this time you’ve only sold five and yet you seem to feel confident you’ll sell the additional 25, 26 in order to get financing on your terms in the next, what’d you say, month, 45 days or something?

Chris Schoen:  Well, what I tried to do was touch on all the things that have been taking place.  We arguably could have gotten going earlier on some of the pieces, but all the things that were really required for us to know exactly what they cost, exactly the drawings, so that the condominium documents being completed, all those pieces … all that had to be in place for us to be able to go to hard contracts.  So the reservation system that we instituted basically at groundbreaking (November 29, 2007) was a method to try to gauge people’s interest level.  We began trying to educate them in regards to what the condos would be like, what the finishes would be like, but we had to have the other pieces in place to be able to go to a definitive contract.  So we really didn’t start that process with Bill [Martin Goldstine Knapke], until 45 days back let’s say.  In that period of time we’ve been getting our marketing materials together, getting our sales pitch down, if you will, and we’re now at the point where we’re really beginning to convert all those reservations and expressions of interest to hard sales contracts…

John Shoaff: My real question, my real concern here is that, your contract with the City is relatively simple.  The City committed to build a stadium and it is building it.  You’re committed to building the condos and retail, furthermore, the contract says you’re committed to having it substantially complete by next June 1st, quite apart from a minor issue, ah, delay there, you talk as if your financing, ah, your going forward depends on financing, but the legal agreement with the City does not give you an out based on not getting favorable financing – it just says you’re going to build these things.

Chris Schoen: Understand that, ah, understand that.  Ah, you know, from day one, the legal contract doesn’t say it, nor does it have to, we anticipated having some component of bank financing in the project.  When we came out with the initial financing memorandum, it was in the 75-80% range - we’ve now revised that.  We’re now prepared to put a tremendous amount of [our own] equity into the project.  Our company, and one of the reasons you picked us, is we’re one of the largest in the country.  This is not a large project for us, but having said that, 50% of a project only being first mortgaged debt bank financing and to then make up the other 50% with a combination of other elements including equity is a big slug.  If what I think our plan is and what I’m trying to say is, we believe that a 50% debt level would be very acceptable.  We clean the package up, we’ve simplified it very much – if you will, we’ve still gotta come up with that number of units to get a bank to do it.  If in the end, we’ve only sold ten, we have a contractual obligation to the City.  If we have to come up with a way to fund 100% of it, right now I don’t know how I’d do that, but we’re committed to figuring out how to do that.

 mp3 audio file of the City Council Meeting

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