1st Mariner Tower faces foreclosure

A French bank has begun foreclosure proceedings on the 1st Mariner Tower, the centerpiece of a mixed-use development in Canton.
A French bank has begun foreclosure proceedings on 1st Mariner Tower at Canton Crossing as the recession and housing slump spread deeper from Baltimore banker and developer Edwin F. Hale Sr.'s banking business to his commercial real estate activities.

Paris-based Natixis SA informed Hale on Friday that the bank's commercial real estate lending arm in New York has scheduled an auction for the 17-story building and surrounding land for Oct. 21 after the default of an $84 million loan, according to a notice of sale.

In an interview Tuesday, Hale said he was considering several measures to resolve the problem, including trying to sell the building that opened three years ago.

"I'm going to do what I have to do here," Hale said. "I'm going to list the building for sale. I'm going to continue to talk to people about refinancing it, and just look at all the alternatives."

The foreclosure is the latest bad news for Hale, whose 1st Mariner Bank has been in distress for the past two years and now is operating under more intense federal scrutiny.

The bank revealed Monday that federal and state regulators have ordered it to devise a plan to improve its capital and deal with problem loans. The "cease-and-desist" order sets deadlines and benchmarks on capital levels for the bank, which has been struggling to raise cash.

"On top of this cease-and-desist, [the foreclosure] is not going to be good," Hale said.

It also raises questions about Hale's plans to expand the mixed-use Canton Crossing development built around the signature office tower off Boston Street in Canton. Owings Mills-based retail developer Greenberg Gibbons, which is partnering with Hale Properties LLC, said the tower's foreclosure does not affect plans for a major shopping center, which is moving ahead.

At issue in the foreclosure is the $84 million loan that matured in August and Natixis has decided not to renew, Hale said.

Although Hale said he's current on the loan, the bank "found I'm in default in a couple of provisions.

"They're sticking it to me. I don't know how much more they can," Hale said.

A message to Natixis Real Estate Capital was not returned Tuesday.

Complicating matters are costs related to a project with Constellation Energy Group to sell power to Canton Crossing tenants. Natixis told Hale that he's paying too much in financing costs for the project and needs to "get this situation squared away," Hale said.

Hale said the 1st Mariner Tower is 92 percent leased and has positive cash flow. Besides 1st Mariner Bank, which has its headquarters at the tower, tenants include CareFirst, Comcast and testing service firm Prometric. Hale also lives in the penthouse as the tower's only resident.

Today, the tower, which was worth $150 million to $160 million at its peak several years ago, is probably worth $130 million, Hale said.

The biggest challenge facing Hale is the lack of financing available on the commercial real estate lending market.

"It's a very challenging time," said Susan Smith, director in the real estate group of PricewaterhouseCoopers in New York. "You have to realize the type of environment we are in right now. Regardless of whether it is new construction, an existing loan to refinance or a new loan that somebody is looking for, lenders are being extremely cautious. They are using stricter underwriting criteria in terms of looking at an asset."

Before the recession hit, lenders typically considered cash flows from commercial real estate as positive and growing because rental rates were increasing and demand for space was strong.

"All that has significantly changed," she said. "Nobody is foreseeing the bottom [in commercial real estate] right now. Nobody on the buying side or selling side and nobody in the commercial real estate lending area."

Hale said a refinancing deal with investment bank JPMorgan fell through early last year, and since then he has been looking everywhere, even considering traveling to Dubai to meet with bankers.

"There are no hedge funds, insurance companies, banks to go out and redo loans," Hale said. "I've been on a trek literally around the world trying to get this financed. And I have a lot of company."

Besides the French bank, Columbia-based office developer Corporate Office Properties Trust has a secondary loan between $26 million and $27 million on the Canton Crossing tower.

Randall M. Griffin, COPT's president and chief executive, said Tuesday that the foreclosure does not affect its loan, which was made last fall.

"It obviously puts Ed Hale in a difficult situation," Griffin said, noting the tower is an excellent property.

"He has to rectify the situation or look at alternatives. This is a pretty common situation, and he has to deal with it accordingly," Griffin said.

Griffin noted that the market for commercial real estate loans may not loosen up until next year.

"If you're in a situation like Mr. Hale where you're an individual developer and trying to find financing, it's very difficult," he said.

The Main Street-style shopping center at Canton Crossing would include a 600,000-square-foot center to be anchored by Target, grocer Harris Teeter and a third large anchor, said Brian Gibbons, president of Greenberg Gibbons.

"We intend to move forward with the retail project," Gibbons said Tuesday.

Hale Properties has a contract with Exxon Mobil Corp. to purchase the land for the center to be anchored by Target and Harris Teeter.

The center is now expected to open by fall 2012 or spring 2013, Gibbons said.

However, plans for two large waterfront pavilions that would house offices and shops could be up in the air depending upon the ownership of the tower, he said.

It would be the first large retail project at Canton Crossing, which is slated to eventually include additional offices, residential towers and hotels.

Baltimore Sun reporter Lorraine Mirabella contributed to this article.