Luxury Condos Saddled by Debt

Luxury Condos Saddled by Debt PHOENIX, AZ - When the first condo owners moved into the Summit at Copper Square, Phoenix leaders hailed the luxury high-rise because it would bring residents who live, work and shop in the heart of the city. But two years later, the 22-story complex near Chase Field has millions of dollars in unpaid bills, from late utility payments to construction costs. The developer, W Developments LLC, said the project's bank debt could lead to future problems, but downplayed other expenses.

Meanwhile, residents, who paid anywhere from $300,000 to more than $1 million, are worried about their investments. The Summit is the latest sign that the once-overheated housing market has put a strain on some upscale projects. At Landmark Towers on Central Avenue, owners say they are paying for costly tower repairs, but have lost perks such as valet parking. A few miles away, Orpheum Lofts owners filed a lawsuit over a permanent parking dispute.

David Wallach, principal of W Developments, characterizes the Summit's legal and financial problems as "challenges" that can be overcome. And the firm still plans to help build a downtown entertainment district and to develop property near the Orpheum Theatre, he said. "The fact that we have challenges and continue to meet those challenges is . . . a true statement," Wallach said. "That doesn't mean that we are having financial problems," he added, calling the Summit "successful."

While several owners in the 165-unit building praised Wallach for giving them frank updates about the building, some worry about the future. Condo owner David Moskowitz hopes he is able to sell his two-bedroom unit for $350,000 through a short sale. "I was so jazzed about this building," said Moskowitz, who bought his unit last year for $650,000 as an investment property. Moskowitz said he would lose thousands of dollars. But real-estate agent Vince Zerilli said he was "very happy" with the penthouse he bought in 2008.

Money appears to be scarce at the Summit. For example:

• Phoenix recently threatened to post a 20-day shut-off notice after the Summit's water bill was three months in arrears. The Summit later made a payment to cover part of its $12,000 tab. The Summit's homeowners association doesn't pay some bills on time because many units are empty. But "we continue to meet our obligations," the developer said.

• Weitz Company LLC, the firm that built the Summit, filed a lawsuit in November, alleging that W Developments didn't make its final $3.7 million payment.

The developer has paid Weitz more than $50 million to date, but couldn't pay more because the Federal Deposit Insurance Corporation shut down W Developments' bank, Wallach said. The firm is trying to recapitalize the project, he added.

But if W Developments can't get financing, the bank may foreclose on the unsold units, Wallach said.

• The developer may owe an airline group $300,000, according to a lawsuit filed in May 2008. W Developments and the airlines planned to share the cost of moving an underground jet fuel pipeline when the Summit was built. According to the lawsuit, W Developments has not paid, arguing that the airlines violated part of the agreement.

• The Summit owes its former property-management company Rossmar & Graham $109,000, according to a May 15 letter from the firm. Rossmar & Graham's president did not return a call for comment. Wallach disputed the letter, including the amount that the Summit should pay the firm.

• The HOA owes $300,000 for several bills, Rossmar & Graham's letter alleges. That includes undisclosed sums for an electric bill and for Northwind Phoenix, which provides air-conditioning for many downtown buildings. Summit HOA dues cover the water bill for the entire building, as well as electricity and air-conditioning for common areas.

Most of that money is a Northwind bill that ballooned because the Summit was undercharged for months, Wallach said. Zerilli said the lawsuits won't impact condo owners' ability to sell because they have title insurance.

The Summit faces two trends, said Donald Mudd, a senior vice president at Grubb & Ellis Co. The Summit needs to convert its construction loan into long-term debt with lower interest rates, Mudd said. Banks either aren't offering those loans, or they're offering loans that don't cover the full construction debt.

The other issue is operation costs. Any commercial building has a base level of expenses, whether it has one tenant or is fully occupied, Mudd said. More vacancies means less income to cover the bills, he added.

Mayor Phil Gordon, who lived at the Summit for several months, said he's been in touch with Wallach to discuss the property's obstacles. Gordon said that although the housing market has been painful, downtown may yet benefit from falling prices, as more young professionals are able to move into neighborhoods that were once too pricey. "The irony is, this may come at the expense of these companies that made investments or those homeowners who overpaid," Gordon said.

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