Antares was riding high, they were being touted as a smart growth, economic boosting, real estate development guru. Now, according to the Advocate, they are showing signs of cracks caused by the financial market exposures to bad sub prime mortgage lending. The Advocate reports:

After showing signs of trouble when it scrapped condominium conversion plans for two of the largest apartment complexes in town, a Greenwich developer has defaulted on a loan, signaling more woes for the beleaguered project, according to a public notice published yesterday.

Lehman loaned $63.5 million to Antares two years ago as part of a deal to finance the $223 million purchase of Putnam Green and Weaver’s Hill, which were to be renovated and sold as condominiums, according to reports published at the time.

Advertisement

The debt was called a “mezzanine” loan, which is a type of supplementary loan used in complex real estate deals.

The first signs of trouble occurred three months ago, when Antares stopped renovation work, saying it was trying to re-finance its debt with Lehman, which totaled nearly $300 million, according to reports.

Meanwhile, contractors began filing mechanic’s liens and lawsuits for millions of dollars, seeking to receive back pay from Antares for renovation and other work done at the complexes.

Now, Antares appears to have defaulted on the mezzanine loan and the lender is trying to sell membership in a limited liability company that owns the two apartment complexes. The properties are not being auctioned, rather membership interest in the company is.

That is important because the members of the company determine the fate of the property, including deciding when and under what terms it would sell the developments.

“It’s a total vote of no confidence,” said Frank Farricker, a former first selectman candidate and New York City real estate professional who is not connected with the deal but has experience in similar deals.

The auction is scheduled for 11 a.m. Jan. 3 at the law offices of Weil, Gotshal and Manges in New York City, according to the notice published in yesterday’s Greenwich Time.

“We’re not surprised by it,” said lawyer John Freeman who represents Antares, adding there is still time to work out a deal with Lehman. “We’re still optimistic that we can continue to negotiate and work it out.”

A spokesman for Lehman Brothers did not return phone calls seeking comment.

Another Greenwich lawyer not connected with the transaction said the auction appears to be an attempt by the lender to make something happen to a property that has been abandoned in mid-renovation and sits half-vacated.

“It’s logical that the lenders are trying to do something,” John Tesei said. “You can’t let the property sit there forever in the condition that it’s in.”

Freeman said that defaulting on this debt does not affect the company’s position in other projects, including plans to redevelop 82 acres in the South End of Stamford.

Of course saying a default on one project doesn’t affect any others is what they want to believe. But let’s look at the marketing hype from one the LATimes:

Many consumers who pay their credit card bills on time are being hit with unfair and confusing increases in the cards’ interest rates, senators said Tuesday, and legislation may be necessary to fix the situation if card issuers do not do so voluntarily.

In a contentious hearing, Sen. Carl Levin (D-Mich.) grilled executives from Discover Financial Services, Bank of America Corp. and Capital One Financial Corp. about the industry’s practice of raising customers’ interest rates because their credit rating had fallen, often simply after opening another credit card account. He also criticized the companies for either failing to notify customers about the rate increase or sending them a lengthy, unclear letter about the change.

“The bottom line for me is this: When a credit card issuer promises to provide a cardholder with a specific interest rate if they meet their credit card obligations, and the cardholder holds up their end of the bargain, the credit card issuers should have to do the same,” said Levin, chairman of the Senate Homeland Security and Governmental Affairs permanent subcommittee on investigations.

Tuesday’s hearing was the second the panel has held on what Levin described as “unfair credit card practices.” After the first hearing in March, he introduced legislation to restrict the ways credit card issuers can increase interest rates.

Antares is just one developer amongst many, but the mezzanine financing by Lehman Brothers is indicative of turmoil in the financial markets. From August:

Analysts at Lehman Brothers on Thursday lowered their profit estimates for the largest U.S. brokerage firms, citing the uncertainty in the credit markets. “We believe that third-quarter earnings will be significantly impacted by the dislocation in the credit and asset-backed/mortgage markets, only partially offset by strength in currencies, rates and commodities as well as decent equities comparisons and favorable investment banking conditions at least through July,” the analysts wrote in a research note. Lehman lowered its estimates for the second half of this year and 2008 for Bear Stearns Cos.

Wishful thinking is a bad basis for investments. The Canadian dollar is now trading higher than the American dollar. That hasn’t happened since 1976. You do the math.

source: LA Times, Senators weigh credit card legislation By Tina Marie Macias, December 5, 2007
source: The Advocate, Antares works to resolve debt deal, By Hoa Nguyen, December 8 2007