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Lenders Become Developers

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Mezzanine lender Dominion Capital Management LLC didn't anticipate developing shopping centers when it lent $170 million to developer Premier Properties USA Inc. But that is what Dominion is doing since Premier fell into bankruptcy court last spring.

Dominion, a small lender based in Atlanta, foreclosed in April on Premier's 11 shopping centers, which were in varied stages of development. With them, the lender inherited a pile of problems: anxious first-mortgage holders; millions of dollars in contractors' liens; and one new center where allegedly faulty construction forced retailers to vacate.

"It saddled us with a lot of problems we're still solving from Premier," Dominion principal Ben Easterlin said of the foreclosure. "We are a lender, not a developer."

Dominion's travails with the Premier shopping centers highlight the struggles that many lenders will endure in coming years as the souring economy pushes commercial real-estate projects into default on loans. Many early casualties are, like Premier, troubled companies likely to leave behind contorted projects for their lenders to untangle.

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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