A bank wants to put someone new in charge of downtown’s Winthrop Hotel, now owned by two troubled Tacoma developers.
But the developers’ financial mess – the well-documented personal bankruptcies of Tom Price and Hyun Um related to their work as the founders of Prium Cos. – might not be the direct cause of Union Bank’s request.
Price and Um are in bankruptcy. At one time they had as much as $350 million in debts. But a forensic accountant examining their empire found the Winthrop is one of just eight Prium companies making money. The examiner said in June the Winthrop can pay its debts and has positive cash flow.
Union Bank’s own filing in Pierce County court this week indicated a $37,286.47 payment on the Winthrop loan came in on March 23, five days after it matured. And the bank’s request for a receiver came only Tuesday.
Why litigate instead of negotiate? A spokesman for Union Bank, Alan Gulick, said Thursday that customer privacy rules prevent him from publicly addressing any aspect of its borrowers’ loans, but that the bank “always keeps its lines of communications with its borrowers open.”
The Winthrop is at least the third notable commercial property in downtown Tacoma that started out with a Frontier Bank loan and has followed a receivership path with Union this year. California-based Union acquired Frontier’s faltering loan portfolio when it failed in April 2010.
The 505 Broadway condominiums and Freighthouse Square both have been taken over by receivers at the request of Union Bank. Both projects have their peculiarities. They were originally Frontier loans and were clobbered by the real estate downturn. In remarks echoed by several developers recently, 505 Broadway co-developer Ken Abbott told The News Tribune in June that banks that inherit loans when another bank fails often have little incentive to negotiate with borrowers because of federal loan guarantees.
When one bank fails, the federal government promises to cover a certain percentage of the loss on any troubled loans to ensure that another bank will take them on. But Abbott and other developers say those promises can mean banks are less inclined to work out the loan with the existing borrower.
Banks, meanwhile, are under pressure from regulators not to continue having exposure to what could be considered bad loans. If a loan looks bad on paper, because perhaps the property has decreased in value since the loan was issued, the loan could be construed as bad even if a borrower is making money and can make payments.
Abbott said in June that even if he and his partner had sold out the building, they wouldn’t have been able to pay off the $31 million loan. Then the souring market forced them to cut prices substantially to sell the units. Once a receiver took charge, those prices were dropped even more.
When the project, which has a view of Commencement Bay and Mount Rainier from the water side, was finished in 2009, the units were priced from $400,000 to $1.5 million. The price range now is about half that.
Frontier lent Winthrop Hotel LLC, a Prium entity, $4.5 million in January 2007 to help it purchase the historic hotel. The rest of the purchase price came from a $2 million loan from the City of Tacoma related to the Winthrop’s use as affordable housing. Prium is current in its payments to the city even though it’s in default on other terms of the loan. But since the city loan is secondary to Union, the city would have to pay Union first if it called the loan. So city officials continue to watch and wait, including through the latest receivership action.
“We’re monitoring the situation,” assistant city economic development director Martha Anderson said Thursday. “At this point it doesn’t affect our loan.”
A phone message left with Prium’s in-house attorney requesting comment on the receivership request was not returned.
Notably, Union Bank has not started foreclosure proceedings. It’s asked a Pierce County court for a judgment in the amount of the loan plus fees and interest. And it’s asked for a general receiver, which under state law has the power to sell an asset. The most recent county assessed value put the property at $5.7 million in 2012, a drop of about $400,000 from the year before.
Union Bank said in its court filing that the loan was modified several times, most recently to make it due March 18. As of then, Union Bank says it is owed $4.1 million plus attorneys fees, costs, late charges, expenses and accruing interest of about $1,500 a day.
Kathleen Cooper: 253-597-8546 kathleen.cooper@ thenewstribune.com
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