A senior residential community in Buckhead. Hotels downtown and in Midtown. Condo and office buildings across Atlanta.
All defaulted on.
In a city where thousands of people have lost their homes to foreclosure, dozens of well-known developers have lost projects or land for their big dreams — both in this recession and in those past. But many of those developers have lived to see another day, and another, and another.
“There’s an old adage,” said Richard Gaudet, principal with GlassRatner Advisory and Capital Group, “if you owe the bank $10,000, they own you. If you owe the bank $1 million, you own them. The adage is still true, there are just more zeroes.”
When individuals have so much trouble starting over in a battered economy, why is that developers who have lost it all — lost even more, perhaps, than many will ever have — can pick up, dust off and live to build again?
It’s happened to John Portman, who in the early 1990s turned over parking lots and a controlling interest in One Peachtree Center (now SunTrust Plaza) to lenders, then came back to build projects from Charlotte to China. It’s happened to Hal Barry, who lost The Riverwood building in Cobb County, then came back to build the Southern Co. headquarters at 30 Allen Plaza. It’s happened to John Dewberry, who just this month lost Hotel Midtown, after paying $36 million for the Campanile.
In 2011, more developers are at the nadir of the real estate cycle than the summit. In mid-July, the brother and son of U.S. Sen. Johnny Isakson were sued by the North Carolina-based bank BB&T, which charges that they failed to pay back a $26.7 million loan they had taken out, with a partner, to build a Buckhead community for people 55 and older.
The Isakson family has been well-known in real estate in Atlanta for more than 50 years. Edwin Isakson, the senator’s father, ran the residential real estate firm Northside Realty before Johnny Isakson became president there.
Edwin Andrew “Andy” Isakson, the senator’s brother, became a developer in his own right, creating Isakson Living in 1982. In 1997, the company moved into the senior residential market.
Tuesday, Andy Isakson told The Atlanta Journal-Constitution he still hopes the Peachtree Hills Place project will progress.
“We’re continuing to work with the bank and have a good relationship with them,” he said.
Gaudet said that, for many developers, is the key to starting over.
“Did he cooperate? Did he go to the bank and give them all the facts? Did he add some value?” Gaudet asked. “He didn’t cause the market downturn. They’re going to give him a break.”
Having a famous name helps, Gaudet said. So does a good track record. Sure, this project may have failed. But how many successes were there before that?
There is no stigma when it comes to failed developments, said Jeffrey Kelley, a partner and bankruptcy practice group leader at Troutman Sanders. Lenders understand that for the most part, failures are due to macroeconomic factors.
Banks may be more willing to listen to their largest customers, said Jim Wheeler, chairman of the banking practice at Morris, Manning & Martin. When times are good, banks often profit handsomely off successful real estate ventures. It’s part of the allure — and risk — of the industry. And finding a $10 million relationship and keeping it is becoming increasingly difficult.
“Donald Trump has lost more fortunes than we’ll ever see,” he said. “John Portman has come and gone and come and gone. They ride the cycles.”
Brandon Hatfield, the director of finance for Dewberry Capital, said in a statement that the company decided to give Hotel Midtown back to the lender after months of negotiations and number crunching. The firm says it paid $21 million for the hotel in 2003 and it made $10 million in profits through 2008, before it started to falter.
But even while letting this hotel go, Hatfield said more are in the pipeline. The company has a hotel under development in Charleston, S.C., and is considering investments in Chicago, New York, Washington, D.C., and Dublin, Ireland.
For big-name developers, losing a property is less emotional than it is for homeowners, who may have to contend with medical bills, a divorce or credit card debt in addition to a foreclosed home. Developers are only talking money, said Henry Lorber, director at the turnaround firm Hays Financial Consulting, even if the sums are huge.
He said in the downturn, developers on hard times may have sought jobs at banks, doing troubled asset work on properties similar to the ones they lost. When they return to building buildings, it may be out of necessity: When the workouts are done, they may be out of a job again.
Gaudet said, too, that individuals are hampered by a dependence on credit scores while well-known developers are able to trade on the relationships they have established in the past.
“If a guy can build a building, he’ll be back,” Gaudet said. “He’ll be back with someone else’s money, but he’ll be back.”
Part of the reason developers are able to succeed again is confidence, Lorber said. Part of it is persistence. If a developer has a good reputation, regardless of losses, the next bank is likely to take another chance.
“Just because somebody fails doesn’t make him a bad person,” he said. “The most successful entrepreneurs, they’ve stumbled at least once. It’s what happens after you stumble that really matters.”
------
Hits and misses
Development isn’t for the faint of heart. Many have lost much, only to build again. Here are stats on a few metro Atlanta “all-star” developers.
Isakson family/Isakson Living
● Home run: Park Springs, a 54-acre retirement community adjacent to Stone Mountain Park.
● Strikeout: Peachtree Hills Place, a 274-unit development set for 23 acres in Buckhead’s Peachtree Hills neighborhood.
Hal Barry/Barry Real Estate Cos.
● Home runs: Southern Co. headquarters at 30 Allen Plaza. Cingular headquarters in Alpharetta. With John Portman, Northpark Town Center at Abernathy and Ga. 400.
● Strikeouts: 55 Allen Plaza and the W hotel and residences downtown. In the 1990s, with Portman, a Cobb County office building The Riverwood.
Jim Borders/Novare Group
● Home runs: The Metropolis and Spire condo towers in Midtown.
● Strikeouts: The Atlantic and three land parcels in Midtown.
● Full count: He bought one parcel back and is planning two new apartment towers, one called Sky House.
Ben Carter/Ben Carter Properties
● Home run: The Mall of Georgia, the largest mall in the Southeast.
● Strikeout: The Streets of Buckhead, slated to be a luxury “Rodeo Drive” style shopping district.
John Dewberry/Dewberry Capital
● Home run: Two Peachtree Pointe anchored by Invesco.
● Strikeout: Hotel Midtown.
● Full count: Buying BellSouth’s mostly vacant former headquarters, the Campanile, for $36 million.
Stan Thomas/Thomas Enterprises
● Home runs: The Forum retail centers, big box stores developments from Home Depot to Target.
● Strikeouts: Prospect Park in Alpharetta, the Railyards in California.
Source: Staff research.
About the Author
