Grand condo plans fray

Ram focuses on saving project in downtown Chapel Hill

Staff WritersMay 28, 2009 

— Two years ago, Ram Development Co. was making plans all over town.

Now it's unclear whether any of them will pan out as planned.

As the real estate bubble was peaking, Ram made a deal with the town to invest about $12.5 million of its own money and borrow more than $60 million more to build about 140 condos, ground-floor shops and a public plaza on a Franklin Street parking lot.

The plan, called 140 West Franklin, was to unite the east and west ends of downtown Chapel Hill and attract other developments like the nearby 10-story Greenbridge condominiums to reinvigorate downtown.

Like so many around the globe, however, that project has stalled amid tightening credit markets. It seems that not even a successful developer such as Ram, with dozens of projects all over its home state of Florida and forays into Michigan, Texas and North Carolina, is immune.

In March, Ram's contract was terminated with J. Randolph Segar to buy the 12.5-acre Town House Apartments site off Martin Luther King Jr. Boulevard. That came only weeks after the Chapel Hill Town Council rezoned the property and permitted Ram to replace the 110 apartments with 346 condos.

"We are still working on the deal, and we're evaluating our options," said Shari Meltzer, Ram's marketing director.

Said Segar, "It's simply in limbo at this point."

Two years ago, Ram proposed another project -- 48 condos, two banks and a 22,000-square-foot office and retail building on Martin Luther King Jr. Boulevard near Interstate 40. Ram had purchased the 13-acre Altemueller tract for $1.8million in April 2006 but sold it last August for $3 million. The new developer, William Christian and Associates, proposes a 300,000-square-foot mixed-use development including 110 dwelling units, a hotel, and office/retail space.

Across the street, Ram had proposed a 16,000- square-foot Walgreen's drug store and a 22,000-square-foot office and retail building near Timberlyne Shopping Center. It submitted a concept plan to the town planning office but never returned with a formal application.

140 West Franklin

Ram has spent the past year trying to get enough pre-sales to get 140 West Franklin off the ground. This month, the company cut prices on some units by about 10 percent, hoping to entice several dozen buyers before it breaks ground.

"Those prices are now more sensitive to the current economy," Meltzer said.

Town Council member Bill Strom, who helped to negotiate the contract allowing Ram to build the mixed-use complex, hopes the company will proceed.

"I can't speculate on what their business model and plan is," Strom said.

"But I can't imagine that this is a great time in the real estate development industry," he added.

A higher bar

Indeed, two years ago, developers could easily borrow three-quarters of a project's cost -- often while offering little guarantee that their projects would be filled.

Today, lenders are willing to offer loans only to those projects where much of the space is pre-sold or pre-leased.

Developers who can get commitments from buyers or tenants are often only able to borrow about 60 percent the cost of a project, which would mean Ram might have to double its cash investment.

That helps explain, for example, why construction of Triangle offices was down 68 percent in March, compared to a year earlier, as Karnes Research data show. Fewer companies are growing, and therefore fewer are signing big leases. That makes it more difficult for lenders to justify the risk, and in turn is stalling planned offices.

Projects with condominiums are especially difficult to finance. Lenders are requiring better credit scores and more money down from prospective home buyers, in turn making it harder for developers to land enough pre-sales to get a loan.

"The lenders have their requirements, and that's why we are being sensitive to purchasers' needs," Meltzer said.

There were 19 condominiums sold in all of Orange County in the first four months of the year, according to the Triangle Multiple Listing Services. That's down 70 percent from the same period last year.

jesse.deconto@newsobserver.com or 919-932-8760

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