For Struggling Condos, the Pandemic Proves the Ultimate Test

Construction at 125 Greenwich has been stalled for months, but the problems predated the pandemic. Last summer, the developers defaulted on loan payments and construction bills, triggering a foreclosure action from United Overseas Bank, which subsequently sold the debt to investment firm BH3. After the developers defaulted, enlisted brokers marketed the debit in a UCC foreclosure auction. In February, Fortress Investment Group purchased the tower’s defaulted mortgage from BH3 for about $230 million, inheriting the foreclosure action.

Patrick Fitzmaurice, a partner at Pillsbury who represents lenders and creditors but is not involved at 125 Greenwich, said it’s not unusual for a development to have a UCC foreclosure and a foreclosure lawsuit levied against it at the same time; different lenders have different priorities and timelines.

Fitzmaurice said lenders in Fortress’ position can “continue negotiating with the borrower and any other interested party” until the end of the foreclosure process, and there’s “always the possibility of a deal.”

Fitzmaurice said that while he has been hearing a lot of talk from lenders about pursuing foreclosures, he hasn’t seen much action so far.

“I think there’s a few different reasons for that,” he said. “Some of it is the nature of the pandemic and the uncertainty that exists with when values are going to stabilize, and where they’re going to stabilize, and how long it’s going to take.”

Fitzmaurice predicts the market will probably see more foreclosures in the next six months or so.

“There are defaults all over the place,” he said. “Eventually, there just has to be [foreclosure] activity when you have those circumstances. Particularly where nobody knows when it’s going to be better.”