Questions raised about loan to Federal Hill developer Agency helped finance upscale city project

October 27, 1998|By Ivan Penn | Ivan Penn,SUN STAFF

While Baltimore officials say commercial banks refused to finance an upscale Federal Hill townhouse development, at least one major Maryland bank said it has tried to contact the developer for almost a year and received no response.

City officials say they could not find a commercial banker to finance construction of 20 townhouses in the 800 block of Covington St. off Key Highway, where a groundbreaking is slated for today next to the American Visionary Art Museum.

The city decided to fund the construction through the Baltimore Community Development Financing Corp. (CDFC), a quasi-public agency set up by Mayor Kurt L. Schmoke in 1989 to provide funds for low- and moderate-income housing projects.

However, since early this year Provident Bank of Maryland has sought to finance the project.

"There certainly was an interest," a bank spokesperson said yesterday. "We were sent a preliminary information packet by a representative of the borrower. We responded, but haven't received any follow-up to our phone calls. Several phone calls were made."

The CDFC gave the project's developer, Jay T. French, a 7.5 percent interest construction loan, which one industry expert said is a half-point to a point lower than commercial banks would have charged.

Schmoke and French -- a political supporter who has contributed $3,500 to the mayor's campaign fund since December 1995 -- are scheduled to hold a ceremony with a ribbon-cutting today to kick off the project's construction.

For the last two weeks, Anthony J. Ambridge, the city's real estate officer, has questioned CDFC's decision to finance the project.

While CDFC insists private banks refused to finance the work, Ambridge argues that the loan could have been negotiated with a private lender, particularly because seven of the units -- which would sell for $225,000 or more -- already are under contract.

"To me, CDFC's mission is to help marginal deals work," Ambridge said.

During a recent news conference, Schmoke said the administration is encouraging a mixture of housing development in the city -- low, moderate and high-end -- but he acknowledged that CDFC should focus on financing the low- and moderate-priced projects.

"I would hope that the Community Development Financing Corp. would be a last resort on the high-end," Schmoke said. "But if the board believes that it is a good deal, then I would support it."

CDFC officials maintain that French needed the loan because banks are skeptical about financing high-end construction projects in the city.

"There's a stigma of the risk of investing your money in the city. Will there be a return?" said Wayne R. Frazier Jr., CDFC's executive vice president. "If you cannot get development projects financed, where's the future for the city?"

Moreover, Frazier said French is a trustworthy developer who repays his loans.

"He has borrowed from us in the past," Frazier said. The loans "are being paid as agreed. I wish they would all pay like French."

French usually restores older properties; he said this is his first high-end development project.

French said he asked CDFC, made up of bankers and city officials, for the loan because he has had a long relationship with the organization, having received two other loans for his businesses. He also has obtained loans for some local community groups he represents as a lawyer.

The developer said he never asked a commercial bank to finance the construction. He said CDFC made inquiries to the commercial banks and was told they wouldn't finance it.

"I went to [CDFC officials] because I know them and they know me," French said.

CDFC asked large banks if they would finance the project, but the banks refused. CDFC then decided to finance the project, according to Frazier and French.

French denied trying to win favor with the Schmoke administration with political contributions. "I just like Kurt Schmoke. I think Schmoke and [Housing Commissioner Daniel P.] Henson are good for the city."

Henson, who also is chairman of CDFC's board of directors, said commercial lenders are reluctant to give loans in the city. "Their perception is this is not a good market," he said. "CDFC will be looking at more deals like this. It attracts people with property taxes people who attend PTA meetings. The city is encouraging homeownership at all levels."

Pub Date: 10/27/98

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