CRDA hit with $5M loss in foreclosure on downtown Hartford hotel where agency helped finance apartment conversion
The Capital Region Development Authority — the quasi-public agency which has pumped tens of millions of state taxpayer-backed dollars into apartment projects in and around downtown Hartford— will lose a $5 million investment now that a New York lender which financed the bulk of a rental conversion at downtown’s Red Lion Hotel has foreclosed on the property.
The loss is the first major one for CRDA, which has helped finance more than 1,500 units since it was founded in 2012. At the Red Lion Hotel, the developer, Inner Circle US, defaulted on the primary loan financing the conversion of the top nine floors into 96 apartments. Inner Circle ran into heavy cost overruns that stalled the project for two years.
The lender, DW Partners, took control of the property — on Morgan Street just east of the downtown North development and overlooking Dunkin’ Donuts Park — in 2019 after the default. DW Partners completed the conversion but leasing has been slow, with the apartments coming on the market just as the pandemic deepened. As of this month, about 35% of the units are leased, according to CRDA, whose investment was a loan.
The bottom half of the 18-story building, which was still operating as a hotel, closed last spring, as the pandemic battered the hospitality industry.
Michael W. Freimuth, CRDA’s executive director, said Thursday there were no “red flags” initially with the project, but it became clear soon after construction started that the conversion was in trouble.
Freimuth said CRDA will seek to recover some of the $5 million loan because Inner Circle principal Joe Gillespie had given “personal guarantees” on the CRDA loan. Those guarantees extended to other hotels, commercial and personal property Gillespie has an interest in, Freimuth said.
Gillespie did not respond to a text seeking comment. DW Commercial did not respond to an email for comment.
The hotel — long under the Crown Plaza flag — suffered historically from low occupancy. Converting the top floors to apartments — initially there was grand plans for a rooftop bar and entertainment space — was aimed at capitalizing on downtown’s apartment boom and generating more revenue for the property.
“They were just very slow in building and, like a few other buildings that got caught in construction in 2019, they hit the 2020 rent-up market at the worst possible time,” Freimuth said. “The project was struggling anyway but with the financial collapse of the hotel business, it was just a formula for problems.”
The foreclosure was dated Feb. 8 and filed with the city two days later. In addition to CRDA, a dozen other subcontractors are listed on the foreclosure. It was unclear late Thursday how they had been affected and whether they also had lost money.
DW Partners told CRDA it wanted to complete the project and eventually sell the property to recoup as much of its investment as possible. While there was some buyer interest, no deal, at least so far, has come to fruition. Meanwhile, DW Partners’ commercial finance arm, DW Commercial Finance, pursued a foreclosure.
The apartment project’s initial cost of $19.8 million was pushed up by at least $3.2 million, partly because combining smaller guest rooms into apartments triggered a cascade of new building safety codes, including fire and security, required by the city.
While the project was technically valued at $19.8 million, the figure included $13.3 million associated with Inner Circle’s move to gradually acquire full ownership of the hotel, beginning in 2013.
Contact Kenneth R. Gosselin at kgosselin@courant.com
