A BANKRUPT DEVELOPMENT. LIENS AND lawsuits. Furious homeowners. Few developers would volunteer to wade into this mess, but that was the challenge with a luxury high-rise condominium project in Chicago's Fulton River District. The Residences at RiverBend looked like a multi–million dollar train wreck—until they called Norman Radow.
Radow loves disasters. His Atlanta-based Radco Cos. is in the risky business of providing critical care to seriously wounded construction projects. The 10-year-old firm has created a niche market resuscitating failed luxury hotels and apartment buildings, including the Four Seasons Hotel and Condominiums in Atlanta and Boston's Grandview on the Common. RiverBend fit Radco's niche perfectly: a $150 million luxury high-rise whose developer went bankrupt, leaving it unfinished and in deep debt. Radco's handling of the crisis has lessons that can teach anyone needing to bring a dying project back to life just how it's done.
Fundamentals First The first lesson is that not every stream yields gold, so when deciding whether to take on a project, Radow and his staff start by asking the same fundamental question any developer would when considering any project: Will the location and market support the sales goals? The answer at RiverBend was a clear “yes.” “This project had incredible vision and a brilliant design,” says Radow. It includes an architecturally unique, 37-story apartment building with 149 condominium units as well as four townhouses. The one-, two-, and three-bedroom condos have 1,206 to 4,057 square feet of floor space—what you would expect in a single-family home—with base prices from $376,000 to $2.6 million. The three-and four-bedroom townhouses range from 3,720 to 6,118 square feet and start at $1.6 million. All have spectacular river and cityscape views. It looked as if it would be a natural winner with Chicago's well-heeled empty-nesters.
But creating a vision and making it work are different matters. “The problem with RiverBend was in the execution,” says Radow. The original developer, Bejco Development Corp., had defaulted on its loans, and ownership had transferred to an investment group. When Radco stepped into the developer's shoes in September 2003, about half of the units were still unoccupied. Most of the punch-out work had not been done, and some common areas were still unfinished. Its charge: complete construction, sell the remaining units, improve services, and restore the condominium association so it could be turned over to the residents.
Solve The Crisis Before getting down to work, however, Radco had to chart a path through a legal and financial minefield. According to Radow, Bejco had failed to pay its bills, and there were multiple liens on the building. Lawsuits had been filed for fraud, non-payment, and breach of contract. A homeowners' shadow board struggled to manage the building, while a group of homeowners threatened a class-action lawsuit.
That brings up the next lesson: After committing to a crisis turnaround, the developer has to “take the crisis out of the project,” says Radow. It helps to find some quick wins. “We immediately resolve any disputes where the issues are black and white.” At RiverBend that meant providing comfort to legitimate creditors by posting letters or credit or bonds to cover each of the liens. Radco solved this part of the crisis quickly. “It took four to six months to get the crisis off the table, but we saw light at the end of the tunnel after two or three.”
The developer also has to earn the trust of everyone involved. At RiverBend this included the homeowners already living in the building. Radco staff attended every homeowners' meeting, listened to their concerns, and tried to act on them promptly. One big help: They set up an overstaffed warranty punch department to swiftly perform repairs and touch-ups to individual units. They also completed or redecorated common areas such as hallways and lobbies, and included homeowners in the design decisions.
Update The Plan With solutions to the crisis under way, Radco needed a plan for finishing the rest of the building and selling the empty units. The first question the project team asked was whether the market had changed since the start of construction. It had. With the continuing resurgence of the river area, potential buyers had become even more upscale and demanding. “The original developer had assessed the market correctly for 1999, but the market changed in 2002,” says Radow. “The interior finishes were inadequate for the people we now expected to sell to.” In response Radco expanded choices for things such as wood flooring, carpet, and countertops. It changed lighting patterns and upgraded to stainless appliances. “We considered everything that our consumers would want, given the price points of the homes we put them in,” Radow says. The strategy worked. The sales team reached 90 percent occupancy just a year after Radco took over the property.
Buckle Up The fact that the entire project happened on an incredibly compressed timetable may hold the biggest lesson: High-stakes turnarounds aren't for the faint of heart. For instance, a developer might normally have 60 days to decide whether to take on a conventional project. The firm might have another 120 days before closing to create a marketing plan, write and print sales literature, and hire a sales and marketing company. At RiverBend Radco had three days to make the buying decision and less than 60 for the marketing prep. “We had to create systems and processes while juggling the immediate needs and priority decisions,” says RiverBend project manager Scott Fishbach.
This type of time pressure puts a premium on the ability to make quick yet wise decisions. The development team has to go in with no prior notions of what's going to work. It has to listen and be responsive to everyone involved. It has to create alternate plans for every part of the project and be ready to seize opportunities. Fishbach says this works best when team members have a variety of backgrounds, and the RiverBend project team included people with backgrounds in multifamily and single-family development, sales, and accounting. “Their varied experience let them feed off each other to support decisions,” he says.
But in the end someone has to be willing to make the decisions and live with the consequences. In Radco's case that's Radow. “It's better to make a wrong decision than no decision. I can't wait to assess, write reports, or wait for market studies. I have to feel it in my bones. Not acting has more consequences than acting wrong.” He prefers to focus on the rewards rather than the risks. “People think we're crazy, but we love this. There's something very satisfying about making something successful that someone else couldn't.”
Charles Wardell is a freelance writer based in Vineyard Haven, Mass.