The Colonnade, home to one of Baltimore's premier luxury hotels and the stylish Polo Grill restaurant, is headed to foreclosure auction July 13 because its owners defaulted on a $22 million construction loan.
The auction, which would include nine of the 119 condominiums that are part of the West University Parkway development, results from one of the hidden causes of the real estate crisis: developers' inability to replace short-term construction loans with long-term mortgages after the real estate crash began in 1989.
"It really is a pity," said Richard G. Birmingham, a Buffalo, N.Y. attorney representing Marine Midland Realty Credit Corp., which owed nearly $16 million from the original 1988 loan. "One sees in the East and the far West, certainly in California, perfectly marvelous properties that have trouble because the marketplace so poor."
The foreclosure auction is but the latest of troubles that have plagued the Colonnade, which was developed by brothers Richard and Howard Rymland, along with their father, Murray, beginning in 1987. Officials at the Colonnade did not return phone calls yesterday.
The developers evidently misjudged the market for luxury condominiums in the Guilford section of Baltimore, forcing them to cut offering prices by more than a third in 1991 and to resort to an auction of their own, also in 1991, to try to sell 45 condominiums. Only 23 sold, and those sold far below their original prices.
The units were originally designed to sell for prices from $130,000 to $1.3 million.
"It wouldn't work in Washington, let alone Baltimore," said David Freishtat, a Rockville attorney also working for Marine Midland.
Mr. Birmingham pinned the blame on the weak economy and the impact it had on insurance companies and pension funds that served as primary mortgage lenders for big commercial real estate projects in the late 1980s.
A commercial bank like Buffalo-based Marine Midland usually didn't want to make long-term loans big enough to build the Colonnade, Mr. Birmingham said. So banks would make short-term construction loans. When construction was over, the developers were supposed to get an insurance company or an institutional investor, which are larger than most banks, to refinance the construction loan with a long-term mortgage. Banks typically tried to make their money on short-term interest and on service charges.
But the real estate crash began to arrive between the time of the 1988 construction loan and the end of construction in late 1989.
When the Rymlands needed to refinance, insurance companies -- already overcommitted to real estate -- wouldn't approve a long-term loan.
"That market fell apart," Mr. Birmingham said. "This is not an atypical scenario."
Colonnade Limited Partnership, whose general partner is Rymland-Canterbury Inc., owes Marine Midland almost $16 million, Mr. Freishtat said. The foreclosure action was filed in Baltimore Circuit Court June 16.
The pending sale is not expected to change day-to-day operations at the hotel, known as the Doubletree Inn at the Colonnade, whose owners last year were reporting occupancy rates of 81 percent, better than industry averages.
Further, Lenny Kaplan, the owner of the Polo Grill, said, "I don't think anything is going to affect the restaurant no matter who" buys the hotel. The restaurant leases space in the 125-suite hotel, Mr. Kaplan said.
The sale also won't affect the condominiums in the building that have already been sold, said Malcolm Sherman, a real estate appraiser and Colonnade condominium owner. Mr. Sherman said the owners pay their condominium fees to an owners association that is independent from the developers and from the hotel. The association is responsible for maintenance and common-area upkeep, he said.
Mr. Sherman said most of the units remaining unsold were one of two types. He said one floor plan was slow to sell because of an unusual design, and the other sold slowly because it was located on the side of the building with the least impressive view. Those units, which originally listed for as much as $290,000, are now available for between $125,000 and $150,000.