Landmark letdown: Hotel project's lender folds

news-landmarkcoverThe Hook posed the question this week about what might happen to the Landmark Hotel. The answer just got a whole lot more complicated with the failure of Atlanta-based lender Silverton Bank.

The legal and financial mess that is the Landmark Hotel project just got a lot messier today. Amid lawsuits from and alleged defaults by its owner Halsey Minor, on Friday, May 1, the Federal Deposit Insurance Corporation announced today that it is taking over the operations of the Landmark's construction lender, Atlanta-based Silverton Bank. This makes the Silverton the 30th bank to fail in calendar year 2009.

"This means they had a lot of bad loans," says local real estate developer Richard Spurzem. "Beyond that, I'm not sure what it means, other than that it adds a new level of complexity."

Minor had entered a loan agreement with Silverton Bank in March 2008, with Minor putting up $7 million in equity and Silverton agreeing to provide the additional $23.6 million for the construction of the hotel.

Then on November 12, 2008, after Silverton withheld one of its regular payments and Minor cried foul.

"It’s a mess,” Minor told the Hook. “I’ve already got my money in this. I put up $7 million in equity up front. They had until Friday to pay $1.1 million, and they just didn’t. They flat-out did not pay.”

"We disagree with Mr. Minor's comments," said Silverton Bank in a statement to counter Minor's suggestion that the bank was on shaky ground. "The loan is proceeding per the terms specified clearly in the loan agreement between the borrower and [Silverton subsidiary] Specialty Finance Group. Any assertion otherwise is inaccurate."

In February, Silverton filed a notice of default against Minor in Fulton County, Georgia and in April appointed Richmond attorney Stuart Simon as the substitute trustee for the Landmark, two key steps the bank would need to take before foreclosing on the property and selling it to someone else. Now, it remains to be seen whether that will ever happen, and how this affects Minor's pending fraud suit against the bank and his former developer Lee Danielson.

The FDIC, however, assures clients in their press release that their move allows Silverton to continue to operate "with the least amount of disruption" and that "there is not expected to be any meaningful impact on the bank's clients."

FDIC spokesperson David Barr says it's "too soon to say" how their takeover affects both the Landmark Hotel and the lawsuits surrounding the project, but does say that their takeover doesn't mean Minor is off the hook.

"We just got in there today, but the FDIC always reviews pending litigation,"  says Barr. "We could move to dismiss the case, or we could try to settle. We just need to get in there and review all the facts."

Minor did not return the Hook's call for comment by the time of this post.

–updated May 1 at 6:19pm


Sounds like possible good news for Minor. Maybe a hotel bail-out is on the way after all and this time it wouldn't be just city tax payers footing the bill.

I heard that Donald Trump is going to come in and take over the project, converting the entire operation in into a condo-hotel. Why, it's certain to be a winner when the economy comes roaring back to life soon. Why, all the politicians, pundits and economists say the this thing has hit bottom and it's only a matter of time until a completely new crop of, I mean, investors jump in. Why, it's never been a better time to buy a home, or condo, or half completed, rusting hulk of an abandoned erector set on the downtown mall. Oh wait...I know! We'll turn into the worlds first high rise Chrysler dealership!

Pete Deer

Don't bet on it, Dan.

I heard that it is going to be converted to a mixed use facility. On the ground floor will be a hip-hop club, upstairs a strip club, skeet-shooting on the roof. Rumors of cock-fighting on floor 7 are just that, rumors.

Im sure the people behind the omni are doing whatever they can to drag this issue out. they stand to lose the most if a newer, trendier hotel opens on the mall. it is in their interest to work against this hotel by any legal means necessary. omni is a 80s disco hotel, people will flock to a new contemporary replacement.

with danielson and minor out, all bets are off. it will become direct comp for the omni. it will no longer be a minor ego palace, it will need a real business plan

Doubt it, not for $700 a night, the amount I was told they planned to charge.

I wouldn't count Danielson out yet

Since the big ugly thing is there, turn it into a free parking deck. Or, if not free, then make it a sliding scale based on the vehicles MPG... Hummer to Hybrid.

I was a little mystified by news reports saying Silverton only lent to other banks, and preformed other back-office functions for them. That made the hotel loan look like a big part of these numbers:

"The FDIC said loan losses caused Silverton's failure, as charge-offs for bad loans went from $4 million in 2007 to $69 million in 2008."

(WSJ, "Key Cog in South, Silverton Bank Fails", May 2)

But actually it was a subsidiary "Specialty Finance Group" that made the loan. You can still visit its web site and look at a list of deals whose average size matches the one here. Normally the loans would be sold off in pieces to other banks:

"Banks also stand to lose money on loan participations arranged by Silverton that allowed smaller banks to team up on large multimillion-dollar hotel and real-estate deals, many backed by poor-performing residential real estate. The FDIC will attempt to sell those packages for cents on the dollar..."

(from the same article)

But sometimes the bank arranging the deal ends up holding the bag. That exact problem helped kill Lehman Brothers, the failure that drove the financial industry over the cliff back in September.

"How Lehman Brothers Got Its Real Estate Fix", NYT, May 2, 2009

Another article explains what will happen to Silverton's construction loans:
The FDIC now owns the loans and will package them up and sell them. It does not say when. The new owner of this one gets a free double lawsuit, eh.