July 28, 2010; Source: Star Tribune | Real estate development, especially commercial real estate development, is a tricky business even in the best of times. Some of us with experience in community development have thought of commercial real estate development as more art than science—compared to residential development, which is a little more standardized and formulaic.
In Minneapolis, a once successful CDC, the Great Neighborhoods Development Corp., has been driven into bankruptcy because of the collapse of a $70 million commercial development project. According to the city’s community development director, “The city was a partner but lost faith in her ability to deliver the [W. Broadway] project in late 2009. The project got too big for her.” “Her” is Theresa Carr, the longtime CEO of the nonprofit. “Theresa went through too many stop signs,” he said.
But it’s easy to see in this story that the city had long given the CDC the green light on the project. The city and the CDC had jointly devised the project as a centerpiece in plans to revive the West Broadway commercial district. The envisioned anchor tenant, the YWCA’s health and fitness center, pulled out in 2009 and negotiations for other anchors didn’t go anywhere.
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Of course, there’s no question that 2009 was the height of the recession, with devastating effects on commercial development and on lenders. It should be no surprise then to find that Franklin Bank may have been a little quick on the trigger to foreclose or go after the CDC’s other cash-flowing commercial developments that had been pledged as collateral.
This story could be read as the on-the-edge life of many nonprofit CDCs. When times and developments are strong, the CDC has lots of government and bank partners willing to share the good press of ribbon cuttings. When markets go sour, it seems that frequently the nonprofit CDC is out there alone, on the precipice, taking the hit.—Rick Cohen