The developer of the Ritz-Carlton Residences in Baltimore announced Wednesday that it has secured a $176 million loan to refinance the upscale condo project, a challenging but vitally important step that allowed RXR Realty to pay off contractors and gave it more time to market the many unsold units.
The condos, on Key Highway overlooking the Inner Harbor, started construction during the flush days of the housing boom but finished in 2008 - squarely in the slump. Just 23 of the 190 units have changed hands. The most recent was to novelist Tom Clancy, who paid $12.6 million in November to turn three penthouse units into one.
The Ritz-Carlton project is the highest of the high end in this market - condos for sale range from the upper $600,000s to more than $5 million - and its success or lack thereof will have ripple effects for area real estate.
Other condo projects have been put on hold while developers wait to see what the market will bring. Last year, the developers of the luxury Four Seasons Hotel and Residences in Harbor East said they were building the hotel but pushing back construction of the residences. So real estate professionals are closely watching the Ritz-Carlton for a sign of what's to come.
"The bottom line is that we would love to have the Ritz be successful," said Ross Mackesey, sales manager at Long & Foster in Lutherville, who was sales manager for the Ritz-Carlton early on. "It's good for the market. It's good for Baltimore. I mean, the fact that it was built here in the first place was good for Baltimore. But if it publicly fails, then it's going to be tough to get somebody to come back in and build the Four Seasons."
The fate of luxury projects is important for all city residents, said Baltimore economist Anirban Basu."Baltimore City needs more taxpayers," said Basu, chief executive of Sage Policy Group, an economic and policy consulting firm. "Baltimore City in particular needs more high-income taxpayers to help take some of the burden away from a struggling middle class."
RXR Realty's original loan - for more than $220 million - came due last June, and RXR had been operating on a short-term extension. CEO Scott Rechler said the 14-bank group involved in that loan agreed to a refinancing that gives the company three more years before the loan is due again.
The refinancing, which went through last week, also gave the developer money to pay contractors and resolve liens, Rechler said. Contractors had filed lawsuits to get paid for their work, including a $10.7 million claim by general contractor Bovis Lend Lease.
Rechler said his team feels they lost an entire year of sales opportunities thanks to the national economic meltdown. Securing more time to find buyers, he said, "was critical" - and not an easy negotiation at a time when lenders are leery of tying up money in home-building projects. RXR had been working on the deal for months.
To help make the case, RXR invited its lenders - many based outside the United States - to Baltimore last year to show them the city and the condos. RXR also put "tens of millions of dollars" of capital into the deal, Rechler said.
"I think it's really a testament to the project and to the city of Baltimore that they had the confidence to provide that three-year extension," he said.
Mitchell C. Hochberg, managing director of residential and hospitality at RXR, said three years "is our outside date" for completing all sales, and he hopes to finish more quickly than that.
The project, managed by the Ritz-Carlton Hotel Co., has the sort of extras most city residents could only dream of - including a concierge, maid service, movie theater and spa. Backers were counting on the appeal of the name and amenities to fill up the units, said Kenneth Wenhold, director of the Mid-Atlantic region for Metrostudy, a firm that does market research for builders.
But the potential buying pool was small even before the bottom fell out of the market, he said. Many people who signed contracts during the boom walked away from their deposits when the Ritz opened, concerned about falling values, chaotic financial markets and dropping net worth. And the economy isn't expected to roar back any time soon. Wenhold isn't sure the extension will prove long enough.
"It is a very pricey, very specific product," he said. "You don't have a whole lot of people who can afford to live there. ... It's still going to be a hard sell, whether they have three years or five years."
Just getting the extra time was a coup of sorts in this market. Lenders tightened their purse strings after U.S. home sales and prices began falling, and "it's still very, very tough" for a developer to get refinancing, said Eric Landry, who follows the home-building industry as an associate director at Morningstar, an investment research firm.
"Until people are confident that the home price declines are absolutely over, it's going to be difficult," he said.