Real Development officials say they are weeks away from securing financing for their two biggest downtown redevelopment projects. If the loans come through, Real Development officials say they can speed up renovation of the Wichita Executive Centre and convert Exchange Place and nearby buildings into apartments.
The projects are the two most ambitious Real Development projects since partners Michael Elzufon and David Lundberg came to town in 2004 and bought more than 13 downtown buildings.
Elzufon, Real Development's chief executive, said he expects the loans to close in February or March and work to begin soon after.
"The loans will put us in a position to begin to move out of the current scenario and rev up our engines again," he said
Progress in the last 12 to 18 months has been difficult, he said. They have been hampered by the credit crisis and local skepticism.
The projects are viewed by many locals, including banks, as too risky or too unusual to support, even though the pair has been reasonably successful in renovating and leasing or selling space in their other buildings.
At Wichita Executive Centre, formerly the SC Telcom Building at 125 N. Market, Real Development is seeking to replace its temporary financing with $8 million in permanent financing.
The problem, Elzufon said, is that where banks used to lend 75 percent of the building's value, now it's 50 percent — if they are lending at all.
"For the better part of 2009, banks were closed for business," he said. "It didn't matter what your project was."
But beginning in December, banks started becoming more interested in lending. Now, he said, he's gotten term sheets, or offers, that are acceptable.
The problem, Elzufon said, is that Real Development has brought 74,000 square feet of new tenants into the building, using most of its available cash to upgrade tenant space and renovate the lobby.
The city of Wichita also financed the renovation of the exterior around the entrance.
The building does generate a positive cash flow, Elzufon said, so the company has been paying for capital upgrades using operating profits.
The upshot is that many contractors and subcontractors didn't get paid for all of their work.
Dave Wells, president of general contractor Key Construction, said he is owed enough to "get my attention."
He said he's been in contact with some of Real Development's potential lenders and said he's optimistic the loan will come through.
" (Real Development has) been extremely forthright in recognizing what they owe us and the subcontractors, and are working on that," Wells said.
Exchange Place is an even larger project, a $50 million conversion of four buildings at Market and Douglas into 230 apartments and a parking garage.
Elzufon said he has a "letter of invitation," a commitment to guarantee a private mortgage, from the U.S. Department of Housing and Urban Development for about $30 million. He has been working on the HUD guarantee for more than a year.
Elzufon is also asking the city of Wichita to raise the amount contributed by tax increment financing from about $9 million to $11 million. This will be repaid from the increased tax revenues coming from the increased value of the property.
Private sources will contribute $9 million in cash, Elzufon said.
The actual lender will be Gershman Mortgage, a large St. Louis commercial lender.
Gershman senior vice president Mark Unangst said large complicated deals with HUD guarantees just take time.
"For Wichita, it seems like it should go very well," he said.
It's been four years since the Minnesota Guys first publicly proposed converting Exchange Place. Allen Bell, director of Urban Development for the city, has learned to temper his expectations.
"It's promising," Bell said of the Gershman/HUD loan. "I'm not saying it's a sure thing, that would jinx it. We are as hopeful as Michael is."