Ousted developer sues Battery Wharf lender
By Kimberly Blanton
Globe Staff / September 11, 2008
The deposed developer of the luxury Battery Wharf project on Boston's waterfront sued the project's lender yesterday for stripping his firm of its $45 million investment in the condominium and hotel complex.
The lawsuit filed by Harold Theran's development company in US District Court in Boston alleges that the lender, an AFL-CIO pension trust, charged "usurious" interest rates for an additional $12.2 million financing a year ago to pay for cost overruns to continue construction. The lender used the terms of the loan to remove Theran as the developer of the complex and make him a consultant instead. The consulting arrangement ended in June.
The suit alleges the rates on the pension fund's new loan - 25 percent - combined with delays approving work by the pension fund caused the debts on the project to pile up, amounting to an intentional "loan-to-own scheme" that effectively wipes out Theran's equity in the $300 million-plus project.
"I'm very sad it has come to this. Filing suit was the last thing we wanted, but we were left with no other choice," Theran said through a spokeswoman, Justine Griffin.
The lender, the AFL-CIO Building Investment Trust, did not return calls seeking comment. Also named in the suit are PNC Bank and PNC Realty Investors Inc., which are trustees and advisers to the AFL-CIO pension fund.
Fred Solomon, a spokesman for the parent company, PNC Financial Services Group Inc., declined to comment on the complaint because he has not seen it yet.
"We remain fully committed to the project, which as a result of our efforts over the past year, is now nearing completion," he said.
Battery Wharf is one of many super-deluxe residential complexes to come to downtown Boston, although it appears to be more star-crossed than others that have already been finished and opened to acclaim. The sales slogan is "utopia engineered" and was intended to convey the world-class amenities and services awaiting those willing to shell out $1 million to $4 million for a unit.
The complex includes a hotel, marina, parking garage, and shops, and developers promised residents of the 104 condos concierge and room service and other amenities from the adjacent hotel. In a June letter to residents, Theran said a hotel would open in the fall. However, Regent Hotels & Resorts left in July as the hotel operator, and Battery Wharf has yet to disclose a replacement. A restaurant and a spa planned for the complex have not opened.
So far 45 of the condos have been sold and closed on, with some residents living there now, while another 13 units are under agreement, according to developers.
Jon Gollinger, president of Accelerated Marketing Partners in Boston, which auctions troubled condo projects, predicted some of the buyers will try to renege on their purchase agreements because so many of the promised services are not available.
"Buyers will look for any angle to force a conversation about getting their deposit back and walking from the deal," Gollinger said. "It's happening all over the country."
The suit also includes other allegations the lender blocked Theran from taking steps to reduce the project's rapidly mounting debts and protect his company's investment. For example, Theran said he found a buyer for the hotel who agreed to pay $85 million. But after initially agreeing to that price, the suit said, the AFL-CIO fund and PNC "changed their minds."
Theran also contends the delays cost the project sales of condos and "interfered with" his efforts to obtain low-rate financing from the City of Boston that he would have used to pay down a portion of the high-cost loans.
Kimberly Blanton can be reached at
blanton@globe.com.
