Philadelphia luxury condo project heads to sheriff's sale

American Loft was to be the centerpiece of a booming real estate empire, an 11-story, 40-unit luxury condominium project at North American and Brown Streets in Northern Liberties.

Now, the 63,000-square-foot, 21st century mid-rise designed by architect Winka Dubbeldam and looming over a hodgepodge of 19th-century rowhouses, warehouses, and vacant lots, is headed to Philadelphia sheriff's sale.

The developer is Gagandeep Lakhmna. His company is CREI - Creating Real Estate Innovations. American Loft is just one of his several projects under way or planned for Northern Liberties, where working-class grit meets urban chic these days and the future seems bright.

Lakhmna was unable to sell enough units priced at $329,000 to $1,479,000 and "agreed to cede control" of the project to the lender, Abington Bank, which is owed "an aggregate outstanding balance of $15.1 million." That would be for three construction loans for American Loft, according to a statement from the bank.

The building - 38 condos and two townhouses - stands empty. A crew, employed by the bank to complete improvements to the project before the sale, worked outside the lower rear level of American Loft last week.

The "upset price" - the minimum the bank will accept for the property based on an appraisal and enough to cover costs and liens - is $15,440,167, according to the legal notice.

Calls to the main number of CREI bounced to a voice mail account at Re/Max City Space, the real estate firm Lakhmna, 37, set up to market and sell his properties. Calls and e-mail to Andrea Boetler, who is listed as CREI's sales director, were not returned.

Lakhmna, who came to Philadelphia in 1993 and obtained an M.B.A. at Drexel, reportedly is in India.

The limited partnership that developed American Loft was Preet Allied American Street and was created a month before Lakhmna bought the parcels for the building.

Many builders are finding themselves in similar straits in this slowdown.

"How many units a developer has to sell to reach the break-even point depends on the amount of the loan," said Philadelphia developer Carl Dranoff. "Typically, lenders have been willing to provide 75 percent of the project's value, but mezzanine financing can boost that to 90 percent."

Mezzanine financing, similar to a second mortgage in residential real estate, is debt secured by the borrower's equity in the property.

"That means that it can be 75 percent or 90 percent of the units before the loan is paid," he said.

The percentage may be high - 80 is common - "but when it takes longer to sell the number because of carrying costs, it goes to 90 percent, and in most cases, it goes negative," said Allan Domb of Allan Domb Real Estate, who develops Center City buildings.

In addition, banks assume that the necessary sales will not reach the necessary level for a couple of years, so they build in a reserve out of which the developer can pay interest on the loan.

"Once you run out, you start paying it out of your own pocket, and that's trouble," Dranoff said.

Land costs exacerbate the situation.

Lakhmna paid $2.6 million in February 2005 for the three parcels - a total of 12,500 square feet - that comprise the site, according to the Board of Revision of Taxes.

"You really have to know the market to know how much land should cost," said Sam Sherman, president of the Building Industry Association of Philadelphia.

He said investors come in from New York willing to pay New York prices for land but do not understand that building costs are high and the lower median income does not create a deep well of high-end buyers.

"I'm buying land now," he said. "The time to buy is when prices are low."

Another CREI project is "Le 22," touted as Northern Liberties' "first gated community," with 20 townhouses priced from $539,000 to $569,000, and two carriage houses listed at $499,000.

Several units have been built but not completed. A pile of earth sits in the middle of the site, across Brown Street from American Loft.

Still, Prudential Fox & Roach real estate agent Kathy Conway said she showed the completed model to a potential buyer Wednesday night.

"While sales have slowed, the neighborhood is still drawing buyers," said Conway, who is the listing agent for L'eau, the mid-rise, 24-unit condo project just south of American Loft at North American and Green Streets, being financed by singer Beyoncé and hip-hop mogul Jay-Z.

There are other, smaller-scale residential projects under way in the neighborhood and around American Loft, as well as commercial and retail development along Second and Third Streets, and Bart Blatstein's continuing efforts - the most recent being the Piazza at Schmidt's on Second Street.

It appears, however, that most of Lakhmna's other projects will not be built, including Q Tower, a 13-story, 24-unit condo building at Second and Spring Garden Streets also designed by Dubbeldam.

Another is Northern Life, a 12-unit condo project Lakhmna planned at 820 N. Third St. He acquired the 15,000-square-foot site for $1 million in 2004, BRT records show.

The foundations at the site were built by a previous developer.

Other projects of Lakhmna - Nouveau in Old City and 101 Walnut in Center City - have been completed. Nouveau, originally a for-sale condo project, is mainly rental, at $2,500 a month.

All but two of the 10 condos at 101 Walnut have been sold. They were priced at $1,975,000 to $4.5 million.

In the 1980s, Northern Liberties was touted as the city's next up-and-coming neighborhood, but the housing bust of 1987 postponed that for almost a decade.

The consensus is that it will not happen this time.

"While we don't want to see empty buildings or sheriff's sales, this is not a sign that this neighborhood will not continue to grow and thrive," said Matthew Ruben, president of the Northern Liberties Neighborhood Association.

Chris Meister, vice president of the neighborhood's Hyperion Bank, agrees.

"We're so much better off than the rest of the nation here, even though product is being absorbed more slowly," he said. "Considering that people are continuing to move in, and that Bart Blatstein's projects are now anchoring the neighborhood, I don't think we'll fall back."