The Monarch 716 student-housing complex on Buffalo's West Side is now in the hands of the lender, which easily won Monday morning's foreclosure auction for the sprawling facility after fending off the owner of another nearby student dwelling that has been much more successful.
Acres Capital will take possession of the 10-building complex after offering $14 million in non-cash "credit" at Erie County Hall – less than one-third of the amount that former owner DHD Ventures of Rochester owed on the property. DHD is led by principals Thomas Masaschi and Jason Teller.
The total debt had amounted to $47.7 million, which was the most that Acres could have bid against its mortgage debt. That included the original judgment of $44.1 million, pre-judgement interest of $2.5 million from the initial default through Feb. 11, pre-auction interest of $608,586 since the judgment, and additional costs and expenses incurred by Acres to maintain the property.
Under the direction of court-appointed referee Raymond Walter, Acres had started the bidding at $10 million, but Greenleaf Development owner James Swiezy raised the price by $100,000, forcing Acres higher. The pattern continued until Swiezy backed out after just a few minutes.
Attorney William F. Savino, a partner at Rochester law firm Woods Oviatt Gilman, who represented Acres, said the lender was prepared to go higher to secure the property and protect its rights to recoup its losses.
"The bank would rather take ownership than sell it for the highest bid of Mr. Swiezy," he said after the auction, without disclosing how far Acres would have pursued the bidding. "Our directions were not to let it go for that amount."
Acres is an administrative agent for Reliance Standard Life Insurance Co., Philadelphia Indemnity Insurance Co. and Safety National Casualty Corp., which provided the original $38.8 million loan for the project. Savino said the lender does not intend to keep the property, but will try to sell it or find a joint-venture partner for redevelopment. He declined to give a timeframe for any action.
In the meantime, the property remains less-than-fully occupied by students and other tenants, but continues to accept tenants. It's overseen by court-appointed receiver Timothy Foster, but Acres could either retain him as the property manager or bring in a new firm.
DHD, through its Buffalo State Ventures subsidiary, had developed the 10-building student-housing project at the site of a former pharmaceutical manufacturing plant between Grant Street and the Niagara Thruway. Officials touted it as a luxury-style complex with a host of benefits and amenities that would be unique and attractive for students.
The project, which is largely aimed at Buffalo State and other nearby schools, features nine four-story buildings with 176 suites and 592 beds, plus a one-story clubhouse and a pool. "It's a beautiful property," said Woods Oviatt partner John K. McAndrew.
It opened to tenants with great fanfare in late August 2017, but never had a relationship with Buffalo State and was quickly embroiled in trouble and controversy instead. It also has no elevators, which are not required for student housing.
DHD and its first property management company, King Residential Group, sought to fill the complex quickly with discounts and other incentives, while also taking in nonstudent tenants, so they could show better occupancy and financial results to Acres. But tenant complaints mounted, criminal activity spread, and about 100 occupants were evicted for not paying the rent. DHD put the property up for sale, initially seeking as much as $60 million, though it never found a buyer.
Meanwhile, contractors and vendors on the project – including general contractor Kulback's Construction – filed more than $3.5 million in liens against DHD for failing to fully pay bills from the construction. Acres – which had extended mortgages totaling $36.3 million on behalf of its three clients – initiated the foreclosure in May after DHD defaulted.
Masaschi and Teller of DHD had sought more time to secure alternative financing to pay off the three insurance companies, but the court rejected their arguments and ordered the foreclosure sale.
DHD, which is a major real estate development player in the Rochester area, also owned two other student-housing projects, called Monarch 815 in Tennessee and Monarch 544 in South Carolina. Both are also troubled, with the 576-bed complex in Johnson City, Tenn., now slated for foreclosure auction in June.