Signature Tower Site in Nashville in Default

Trying to build the tallest building in the Southeast has put one of Nashville’s most prominent developments into default, while its financial partner is facing major financial problems of its own.

An $11.5 million development loan for Nashville developer Tony Giarratana’s proposed 50-story Signature Tower in downtown has been in default since February, and remains in default after coming due at the end of April, according to a letter sent in May to investors in the Novare Group, Giarratana’s development partner.

Atlanta-based Novare, which has served as the equity partner on more than $150 million of Nashville-area projects with Giarratana including the Viridian and Encore condo projects, is facing major financial challenges, too.

The dire nature of the Atlanta company’s situation is spelled out in a May 29 report from Deloitte and Touche, regarding its independent audit of Novare’s finances. “(T)he company’s in default on a substantial amount of its indebtedness. These defaults and the significant maturities in 2009 of outstanding indebtedness raise substantial doubt about the company’s ability to continue as a going concern,” the audit states.

Regarding the Signature, Giarratana says in a letter to the Nashville Business Journal that he is negotiating with the lender, Wachovia, for a loan extension. He says Novare is only tangentially involved with the project and that the Signature Tower loan has been re-negotiated three times. He is now in negotiations for a fourth amendment that would extend the maturity date, when complete payment will be required. “(W)e continue to have a cordial relationship with Wachovia, our land lender on the project. We have continued to service the debt and are actively pursuing capital to begin the project,” Giarratana’s letter reads.

The Signature loan has been in default at least twice, both times for a lack of payment, and has remained unresolved since it matured more than two months ago, according to Novare’s financial statements. Wachovia Bank would not comment on its lending agreements.

According to Novare’s financial report dated Oct. 31, 2008, the company received notice in August 2008 that the loan was in default because Signature Holdings — owned by Giarratana — hadn’t made a scheduled $1.4 million payment on the loan.

On Oct. 10, however, a loan modification extended the due date for the loan to April 30, 2009, according to the Novare documents obtained by the Nashville Business Journal. Under that agreement, Giarratana put up additional collateral valued at $6.5 million. Novare also agreed to subordinate a $1.5 million loan it had made to Giarratana, meaning the bank would be first in line to collect any money paid to the loans.

Signature Tower has been in the design and pre-construction phase for years. The building was first proposed as a 50-story building, but grew in size as a hotel and more floors were added until plans called for a 70-story skyscraper, taller than the Chrysler Building in New York. In April, Giarratana announced that plans for the tower were being scaled back down to 50 stories — which would still be the tallest in Nashville.

Novare says in a written response to the Atlanta Business Chronicle that its “objective is to restructure the Company’s balance sheet” without having to file for bankruptcy.

Giarratana has always aimed high. Along with Novare, he built the $70 million Viridian, the first downtown condo high-rise in Nashville, as well as the $80 million, 333-unit Encore.

Giarratana Development and its partners have completed about $300 million in projects in the past decade, including 1,100 urban residences, 2,000 structured parking spaces, and 100,000 square feet of retail space — and the sale of condos “has or will liquidate the construction loans on many of these projects,” Giarratana says in his letter.

The Encore is a bright spot for Novare, with 77 percent of units sold, and only $7 million left on what was a $63 million loan, Giarratana says in his written statement. He says the project should be sold out by September. The construction loan for the Encore was due last month, but was re-negotiated to extend the maturity date to June 30, 2010, according to documents filed with the Register of Deeds.

Atlanta-based Guest Relations Marketing has also sued Giarratana for not paying $53,000 for work done to promote the Signature Tower. Guest Relations’ suit says that despite being awarded the money in arbitration, Giarratana has not paid. Giarratana has said the suit stems from a disagreement over what work the firm actually did.

Giarratana filed a $2.25 million suit in early June against Gresham Smith and Partners over work by the architecture firm on the design for the Belle Meade Town Center. The holding company of that project, BMT Associates, took out a $23.7 million loan from Wachovia for the project in August 2006, as well as a $2.1 million line of credit. A spokeswoman for Gresham Smith declined to comment.

In addition to Novare’s interest in the Encore, Novare is at least part owner of the 73,400-square foot St. Cloud Corner office building at Church Street and 5th Avenue across from the Signature site; the 12,000-square-foot Cohen Building at 421 Church St., which was purchased in 2007 for $5 million; and the retail elements of the three downtown condominium buildings it helped develop .

In 2008, Novare had a net loss of $61 million, and in the first quarter of 2009, lost an additional $47 million, according to a letter by Novare President and CEO Jim Borders, which was included with financial statements for all of 2008 and the first quarter of 2009.

The letter says the losses stem from projects that were put on hold because of the weak economy but have still incurred development expenses. In addition, many of their condos on the market have suffered from a significant decline in the price and speed of sales. “Put simply, outside of Austin, Texas, we are only able to sell if we do so at a price that is less than our cost,” Borders’ letter reads. “The combination of construction pricing from a very healthy market two to four years ago when we started our existing projects, and consumer demand in a very weak market today, has caused this result.”

No properties have entered foreclosure, Borders said in an e-mail to the Atlanta Business Chronicle, “but there are near term and past due maturities that could result in that.”

The company has 1,387 high-rise units under construction, including about 500 in Atlanta, 462 in Charlotte and 395 in Tampa.

Novare is no longer making scheduled interest payments on loans secured by eight projects in Atlanta, Tampa, Houston and Charlotte. Combined, the loans come to almost $57 million. Novare suspended the payments as lenders reconsidered the request to restructure the loans.

Thanks to Turner Hutchens