Rittenhouse Square condo developer files Chapter 11

The developer of 10 Rittenhouse Square has filed for Chapter 11 bankruptcy protection to stop the 33-story luxury condo building from being placed in receivership.

The voluntary Chapter 11 filing in U.S. Bankruptcy Court here by Philadelphia Rittenhouse Development L.P. halted the appointment of the receiver requested by the senior lender, Istar Tara L.L.C., of New York.

There are 135 condominiums, priced from $600,000 to $15 million, at 10 Rittenhouse, as well as retail and restaurant space. About 40 of the units have been sold thus far, according to records of the Board of Revision of Taxes.

Neither action will affect those who have bought units in the building, said John C. Decker, managing partner of Rittenhouse Pension Investors, which assumed management of 10 Rittenhouse from developer ARCWheeler in July.

"There is no risk" to the unit owners, many of whom don't even have mortgages, said Steven H. Shepsman, executive managing director of New World Realty Advisors in New York, which is assisting the developer in its financial restructuring.

Rittenhouse Pension Investors is a subsidiary of Delaware Valley Real Estate Investment Fund, a consortium comprising pensions of 47,200 union members (primarily in the construction trades).

The fund is the project's mezzanine lender. A mezzanine loan is similar to a second mortgage in residential real estate, and Delaware Valley Real Estate Investment Fund has a $57 million stake in the building.

Istar Tara, which did not return a request for comment Tuesday, originally had $251 million tied up in the project, and says it is owed about $200 million.

Decker said that the amount owed is less than $200 million, and that since the fund assumed control in July, Istar had been paid $17 million from sales of units.

In a lawsuit filed against Istar in Common Pleas Court when it took control in July, the investment fund said its action was to save the building "from the depredations of a troubled hedge fund and rogue lender," speaking of Istar.

Decker said the decision to seek Chapter 11 protection was made when it appeared that the Philadelphia Court of Common Pleas was "heading in the direction" of receivership, adding that "it was not clear why" that decision was made.

On Dec. 30, Judge Albert W. Sheppard Jr. overruled the developer's objections to Istar's efforts to foreclose on the property and to appoint a receiver.

Decker and Shepsman said that receivership would reduce the building's value.

Prospective buyers "saw the specter of receivership and how it might affect values," and that apparently has slowed sales from three to four a month to one or two a month recently, Shepsman said.

Istar also was the senior lender for Aria, the condominium building at 1419 Locust St. When a New York-based developer defaulted on its loan, the building went into receivership, and sales were halted for a year, starting in January 2009.

GoldOller Aria Associates of Philadelphia bought the unsold units and ground-floor commercial space at sheriff's sale in November 2009.

On Monday, Philadelphia Rittenhouse Development L.P. asked U.S. Bankruptcy Judge Stephen Raslavich for an extension in filing required financial statements regarding 10 Rittenhouse.

Decker and Shepsman said, however, that estimates of assets and liabilities for the property being in the $100 million-to-$500 million range were accurate.

No hearing date has been set by the bankruptcy court, they said.