Office tower's 'imminent' default

Even with $20 million in improvements by McConnell Johnson Real Estate, including an open atrium and "Innovation Center" for start-ups, and the signing of the proposed Delaware Board of Trade penny-stock exchange as a future tenant, the $65 million loan investment financing backing Hercules Plaza in downtown Wilmington "has been transferred back to Special Servicing for imminent monetary default," writes New York commercial real estate tracking firm Trepp LLC, in a report to clients, citing Fitch Ratings.

"The property was last appraised for $58.9 in 2014, which is a sharp reduction from its appraised value of $118.5 million at securitization." Hercules Plaza makes up about one-third of commercial real estate securitization WBCMT 2006-C25.  McConnell Johnson officials didn't respond to my request  for comment.

On a visit to the property in June, Paul McConnell, partner in the real estate firm that controls the building, told me new tenant DBOT should open this month, a few months behind its earlier schedule.

But a federal law designed to give local "venture exchanges" like DBOT special protections, the Main Street Growth Act HR 4636, appears stalled in Congress, at least for this session, a lobbyist whose organization supports the measure told me.

The bill is sponsored by U.S. Rep. Scott Garrett, R-N.J., whose staff hasn't responded to my requests for comment.

DBOT organizers including former Cincinnati Stock Exchange official Nick Niehoff and ex-Philadelphia Stock Exchange trader John Wallace, options official Al Brinkman, and political supporters like New County Council Executive Tom Gordon, say the exchange will employ scores of well-paid traders, bucking the industry trend toward consolidation and virtual networks.

DBOT organizers last year claimed the support of prominent Wall Street figures including former New York Stock Exchange boss Richard Grasso and UBS Financial Services Chief Joseph Grano, but the pair distanced themselves from DBOT last year. Gordon went ahead to appropriated $3 million in county financing for the project.

"The organization is talking with the regulator," the industry-run Financial Industry Regulatory Authority (Finra), DBOT marketing director Al Brinkman told me. The Garrett law "would make it easier," but DBOT is preparing to do business as a trading system even without the special venture exchange status the law would grant. Either way, Brinkman added, "the idea is for these small companies to grow" so they can eventually be traded on mainstream exchanges.

Will DBOT open this summer or later? DBOT officials say that's up to Finra, and it's tough to predict what regulators will do.

A potential competitor, Cromwell Coulson, CEO of OTC Markets Group, an "exchange-like" SEC-regulated alternative-trading system in New York, told me he questions the need for government-protected and -subsidized regional markets like the venture exchanges envisioned by the Garrett law.

Isn't that a good goal, that helps more companies go public? "It's a laudable goal. But in this bill they want to force brokers to do all their trades on these venture exchanges," Coulson told me.

"The history of America has been competition between exchanges and broker-dealers. Any bill should be about fair competition between models. This bill is pushed by lobbyists who want to create government-granted monopolies. Why should the government basically fund a private business that isn't attracting free-market funds?" 

Can DBOT function without the Main Street law? "They can compete with us and everyone else," Coulson concluded.