Four Stalled Projects Come Back from the Dead

Bailey’s Crossing, Alexandria, Va.

When San Diego-based Fairfield Residential declared bankruptcy in the fall of 2009, it left behind a trail of unfinished business, including Bailey’s Crossing, a 90 percent completed, four-building apartment community in Alexandria, Va. In December 2009, Addison, Texas-based Behringer Harvard stepped in to save the property and bring the units online. In a joint venture with Dutch pension fund PGGM, Behringer Harvard acquired a 78 percent interest in Bailey’s Crossing after contributing $29.1 million of equity. “They were able to do this because they had a mezzanine loan on the original deal,” says Ben Thypin, a senior market analyst at New York-based research firm Real Capital Analytics. “To expedite the completion of property, Berhinger converted their mezzanine loan into equity and put in $29.1 million to pay down the first mortgage.”

These sorts of creative solutions, in which the mezzanine lender takes over or even a new partner comes in and contributes new equity to bring down the balance of the debt and make the project more viable, are happening more and more frequently, Thypin adds. “A lot of firms out there right now are trying to buy mezzanine loans in order to do what Behringer did and be in the position to take over the property by giving the first mortgage holder a more palatable option than a costly foreclosure.”

Behringer Harvard expects to complete the 414-unit Bailey’s Crossing this summer; the community already is more than 30 percent leased. The one-, two-, and three-bedroom units will feature stainless steel appliances and cultured marble countertops; amenities will include a pool, clubroom, fitness center, and rooftop pool.