Wednesday, March 25, 2009

Developer of Dallas' Victory Park negotiating with German investors on debt

The developer of Dallas' huge Victory complex is negotiating with a group of German investors and lenders about meeting the conditions on debt for several Victory buildings.

"This development, Victory Park, like many other U.S. developments, has been impacted by the tremendous downturn in the economy," Todd Platt, CEO of Hillwood Investments, said in a statement. "We are having extensive discussions with our investment partners and remain confident in the long-term viability of the project."

Platt was quick to point out that the financial issues involve only Victory.

"Hillwood operates several highly diversified, well-capitalized groups of companies with many successful projects," he said.

Tuesday's Financial Times of Germany reported that German investors who hold the debt on some Victory buildings received a letter that raises the prospect of a "breach of contract regarding some credit agreements" with Hillwood. The debt in question totals about $185 million and was issued by fund manager US Treuhand (U.S. Trust), according to the article headlined "Wild West" that was picked up by European wire services.

The Financial Times said that there are concerns that Hillwood may be short of cash and cannot make good on commitments concerning the Victory project.

US Treuhand's parent company is owned in part by the city of Hamburg and other German government entities.

Hillwood declined to provide details about its debt or which Victory buildings were included in the deal.

There is no indication that Hillwood is not making its payments on the debt, but other factors can trigger a loan default and could – potentially – result in a foreclosure. None of the properties involved had public-sector support.

During recent months, the ambitious Victory project northwest of downtown has been the subject of growing scrutiny because of falling retail occupancy and the cancellation of some buildings that had been planned there. The Financial Times article mentions Victory's vacancy problems and the potential for declines in the value of its buildings.

Anchored by American Airlines Center, the 75-acre Victory project has been a textbook example of U.S. urban renewal. The modern complex of skyscrapers replaced a polluted rail yard and power plant. But while the office buildings and some residential properties at Victory have done very well, the retail portion of the development never leased up.

In recent months, some high-profile tenants moved out when they were unable to attract customers to the project. Plus, a new 28-story condominium tower at the south end of the development called the House remains largely unsold.

Victory's developer – Dallas businessman Ross Perot Jr.'s Hillwood company – said it plans to broaden the appeal of the project with new moderate-price restaurants and other tenants. Hillwood acknowledges that the development has suffered because of its initial focus on high-end retail tenants and the worsening U.S. recession.

In 2006, US Treuhand and its parent company, HSH Nordbank of Hamburg, said they were providing an $86.5 million credit facility for construction of the House residential tower.

The lender said in a news release that the borrower was a joint venture of Hillwood, US Treuhand and U.K.-based developer Yoo.

The debt was held in one of US Treuhand's closed-end U.S. real estate funds. US Treuhand said the House was one of eight Victory properties financed by its real estate debt funds.

"It gives us great pleasure to assist in such a significant and exceptional project development in the United States," Bernhard Visker, head of HSH Nordbank's real estate segment, said in that announcement. "We consider the concept to be very promising and expect the overall project to raise the profile of the city of Dallas considerably."

The Dallas Morning News