One of the first historic tax-credit apartment projects by two notorious developers has gone into default.
The 95-unit Parachute Factory building developed by Justin French and Billy Jefferson is five months delinquent on payment of a $15.1 million loan, according to a report by the real estate tracking firm Trepp.
An entity controlled by Jefferson’s Historic Property Management, previously River City Real Estate, owns the Parachute Factory property. The last payment on the building’s loan was received in May. BizSense was unable to reach Jefferson by press time.
In August, CWCapital Asset Management was appointed as a special servicer on the loan, which Wachovia issued in 2006. The bank did not indicate an intention to foreclose in the Trepp report issued this month.
The Parachute Factory’s loan has a balance of $13.7 million and is scheduled to mature in 2016. It is an interest-only balloon mortgage, which means the borrower is not required to pay down the principal of the loan until it comes due near the maturation date. At that point, the borrower would typically refinance.
French and Jefferson converted the former warehouse into a 177,000-square-foot apartment building in 2006. The team received more than $4 million in state historic tax credits on the $16.7 million renovation, according to state records.
Manchester apartment development has exploded since the Parachute Factory came online. Almost 1,000 units have either opened in the past couple of years or are under construction. Fountain Properties principal Tom Papa said recent development has shifted to more upscale complexes.
“There’s a lot of old product [in Manchester],” Papa said, “old product that basically didn’t have the amenities that apartment dwellers want today.”
Papa, whose Fountainhead Properties developed New Manchester Flats and the Commons at Plant Zero in Manchester, said newer two-bedroom apartments in the neighborhood can reach rental rates of $1,200 per month. The Parachute Factory advertises two-bedroom units at $700 on the Historic Property Management website.
Robin Miller, who with fellow developer Dan Gecker has built the Old Manchester Lofts and 909 Perry Street Apartments, said his Manchester properties typically run between 95 percent and full occupancy. Although rental rates are important, Miller pointed to several other factors that can determine a building’s success.
“You need to be priced competitively, but that’s not enough. It needs to maintained well, it needs to be leased up well, you need to maintain the quality of your tenant, it needs to be quiet enjoyment,” he said. “Once a property gets a reputation for not being quiet enjoyment, it has a problem.”
Trepp reports that the Parachute Factory took in $291,418 in rental income for the first quarter of 2013 and more than $1.3 million in 2012. Occupancy has been on the rise and is at 98 percent. The report shows it had fallen to 68 percent in 2010.
French and Jefferson have been the subjects of historic tax-credit fraud investigations. French is serving a 16-year federal prison sentence for a tax-credit fraud that unraveled in 2010 and 2011.
French also collaborated with Jefferson on the Tobacco Factory Lofts in Manchester. His empire included several buildings in Scott’s Addition that have since been picked up by other developers with plans for apartment conversions.
Jefferson has been indicted on two counts of forging and uttering public records, stemming from alleged inflation of costs on his own historic tax-credit projects in 2012.
Charles James, a Williams Mullen attorney representing Jefferson in pending criminal proceedings, declined to comment on the default. A trial for Jefferson is scheduled for Nov. 15 in Richmond City Circuit Court.
Jefferson also owns the Tobacco Factory and several small rental properties in the Fan and Carytown. He recently sold a 5,000-square-foot home next door to the six-bedroom residence Jefferson built for his family at Boulevard and Monument Avenue.
The home, put on the market near in early summer, fetched slightly more than $1 million, according to city records.