Tuesday, September 20, 2011

Part of Glendale Westgate City Center repossessed by lender

Westgate City Center, Glendale, Arizona

David Kadlubowski The Arizona Republic Westgate City Center, a retail-and-entertainment center with opulent fountains and flashy billboards, opened in Glendale in 2006.

The developer who launched Westgate City Center, the landmark sports-and-entertainment complex that helped transform Glendale, has officially lost ownership of the major part of the development.

The core of the Ellman Cos.' project, outside University of Phoenix Stadium and Jobing.com Arena,was repossessed Monday by the lender, iStar Financial, after it failed to sell at a foreclosure auction for a reserve price of $40 million.

History of Westgate City Center in Glendale

The 33-acre property, which features restaurants, shops and an AMC movie theater along with Bellagio-like fountains and Times Square-style billboards, was designed as a suburban sports, entertainment and commercial hub to rival downtown Phoenix.

The remaining land owned by Ellman Cos., 95 acres of mostly parking lots slated for future development, is scheduled for foreclosure auction in November by lender Credit Suisse.

The auction is the latest blow to Glendale's prestigious sports district and another example of how the city has been shaken by the economic downturn.

The Phoenix Coyotes went through bankruptcy two years ago and still have no permanent owner. Now Westgate, at Loop 101 and Glendale Avenue, has been taken away from Steve Ellman, the city's development partner for more than a decade.

Westgate's opening in 2006 was like a launch party for the West Valley, with excitement brimming about the region's future as the flashy complex rose out of farm fields.

The Coyotes played next door, and the Arizona Cardinals had just moved in nearby.

Ellman, the chief executive of the company, called Westgate his favorite project.

At the time, a planning expert had cautioned the project was a gamble that relied on synergy between sports fans and shoppers.

Ellman Cos. initially struggled to secure financing and finished construction later than expected.

Then the recession further challenged the company's ability to keep tenants and expand development.

Ellman failed to pay the balance of $97.5 million in loans from iStar Financial and at least $202 million from Credit Suisse that came due two to three years ago.

By this summer, the lenders declared Ellman in default and began foreclosure proceedings.

Ellman cited the recent two-year struggle to find a Coyotes buyer and the real-estate meltdown as reasons Westgate went into foreclosure but would not elaborate on why he failed to pay the principal balances on the loans.

Hadden Schifman, a real-estate analyst with Phoenix-based Vizzda, said Westgate's massive size and various uses, from office to retail to dining, make it unique and add to the difficulty of finding a buyer.

"There's really not a comparison. And there's a huge amount of complexity in this deal," he said. In other commercial-property foreclosures, it's common for investors to wait until after an auction to negotiate with lenders to buy a foreclosed property, he said. Westgate could be similar, Schifman said.

Schifman's business partner Kris Thompson said investors could be interested in buying Westgate if they see the property as a "rare find," have the money to wait for long-term returns and are looking for an investment at a steep discount.

Westgate "requires Donald Trump vision," Thompson said.

One possibility that has been floated is finding an investor willing to buy both Westgate and the Coyotes. When Ellman began the project, he owned both the shopping complex and the team, which feed business to each other.

Ellman later split the entities and kept Westgate.

Whether the lender will keep Ellman Cos. as property manager remains an open question.

Westgate's "sheer scope" makes it logical for the lender to hire Ellman Cos., Schifman said.

On the other hand, if the lender and Ellman Cos. have a bad relationship, the lender may hire someone else, he said.

Ellman said this summer he believed his company could stay on as manager.

Ellman Cos. on Monday directed requests for comment to iStar Financial. A representative for iStar did not return calls.

Jeff Blake, dean of DeVry University's Westgate campus, said he's "as curious and concerned as anybody" but has no plans to change anything at the school, since tenant leases will remain intact. The school moved into Westgate last year.

Glendale spokeswoman Jennifer Stein said the city continues to consider Westgate "a strong destination point and economic engine."

Westgate generates about $8 million a year in sales-tax revenue for Glendale.

City officials plan on "business as usual" as they promote businesses and events in the sports district, Stein said.

by Rebekah L. Sanders The Arizona Republic Sept 19, 2011

Part of Glendale Westgate City Center repossessed by lender

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