Business

Owners report mixed views of developers

Several owners and a former owner in Real Development's office holdings in Wichita paint different pictures of their dealings with the company.

Some say they haven't received rent payments for months and that their profit margins are either thin or nonexistent. Others, including a former owner who took a loss, say they are satisfied with the company's work.

Most of them met partners Michael Elzufon and Dave Lundberg through an investment club in the Los Angeles area.

The three owners and one former owner contacted for this story asked that their names be withheld.

"We've had great financial losses and are very disappointed with this investment, to say the least," said one owner, who bought a floor at one of Real Development's buildings in 2006.

Not receiving rent payments and experiencing a spike in expenses, including utilities, in recent months was a common concern among owners.

Those problems coincide with a significant change in the relationship that Real Development has had with the office buildings.

Elzufon said that for the first year of ownership of a floor in the buildings, the company guaranteed rent, income and "investment in every way, shape and form."

Elzufon said he and Lundberg continued to cover expenses beyond a year, even though oversight of the buildings was taken over by an office condominium owners association.

"We cured any and every problem that came up," Elzufon said.

After spending three months auditing their books, they brought all that to a halt last September.

Floor owners were responsible for all expenses, even if it meant receiving a smaller rent check or none at all. Floor owners had to pick up the slack left by other floors that were vacant.

"Everyone had to pay their fair share," Lundberg said. "Before, if there was a shortfall, we paid that."

In October and December, Elzufon held meetings in California to explain the changes.

"At some point you have to break the truth and lay it out like it is," Elzufon said.

Lundberg said Real Development is getting its rent check for a floor it owns at the Petroleum Building that is 100 percent occupied.

Banks have foreclosed on owners of some floors, which has further increased the burden on owners of the remaining floors in the affected buildings.

"I'm sure that creates some angst (for owners)," Lundberg said. "I'm sure not many of them have been involved with an association for office condos, so, yes, it's a tough process."

One former owner blamed a special tax assessment and the economy for problems surrounding the two buildings where she purchased floors.

Both properties were returned to the lender last summer at "a pretty good loss," the California woman said.

She joined with another investor in buying one floor at Broadway Plaza in 2006 for about $400,000. In 2007, they bought a floor at the Orpheum Office Building for about $360,000.

She said the Orpheum floor was doing well with a 95 percent occupancy rate, but that changed after the building was hit with a special assessment tax, increasing expenses enough to wipe out her profit margin.

The special assessment came after Real Development requested the city help fund a facade improvement program on five of its properties. That included the Orpheum, which required $215,000 in city bonds repaid through assessments.

As for the floor at the Broadway Plaza, she said she entered the deal with a tenant who signed up for a five-year lease. But the tenant bailed out after only two months because he couldn't get funding for his business, she said.

" (Elzufon and Lundberg) marketed it pretty aggressively," the woman said. "They got it to 50 percent occupied. But unfortunately, we needed it to be 80 to 85 percent occupancy to break even.

"I do believe both Michael and David have the best intentions. I feel like the city needs to step up and work with them."

That's also the sentiment of Kirk Short, an agent with Remax Realty Professionals in Wichita who had been involved in litigation against Elzufon and Lundberg.

"I think they're going to do what they say they're going to do with the money that's going to be laid out," Short said. "If there's a question about it, the city has enough ability to put checks and balances in there."

In December 2008, Short sued Elzufon and Lundberg for $241,596 in unpaid sales commissions for selling 24 condominiums at Exchange Place.

Last week, Short said, "It's all being worked out. We're trying to settle.

"Have there been mistakes made in the past? Sure," Short said. "Not everything has always been rosy. That can be seen by the situation I was in with them."

He said many of the problems have been created by bad timing with the economy.

"You go through the market expecting one thing relative to the financial market and it does a complete 180 on you midway through the projects," Short said. "It's tough to blame anyone other than your own ambitions to try to do some things."

He said Elzufon and Lundberg have done a lot for downtown.

"Are they just trying to get a bunch of money and blowing a bunch of smoke? I really don't think that's the case," Short said.

"As long the (city) can have their checks and balances, they would be stupid not to support it."

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