Pulling up stakes

Although Opus is still exploring options for restructuring its West and East operations, the company plans to exit the South entirely.

“Opus South is an organized liquidation, so we have no plans to go back into that market,” Hewett says.

Opus South stumbled largely due to its ill-timed involvement in condo development prior to the housing collapse in Florida. Three of the four condo projects Opus South built in Florida came on line right as the housing bubble burst in 2007, Hewett notes. As a result, 220 of the 330 units remain unsold.

A Chapter 11 filing is imminent for Opus West. The operating company has been an active speculative developer in Phoenix, which has been hard hit by the economic downturn, overbuilding and a decline in real estate values. Many of those projects were started three to five years ago in a strong economy.

Now as the short-term construction loans come due, even when the properties are cash flowing, there is no capital and no buyers,” Hewett says. “If lenders are not restructuring those loans, there is not much you can do other than hand back the keys,” she adds.

For example, Opus West filed Chapter 11 on the Hill Country Galleria near Austin, Texas in May. The Hill Country Galleria is a mixed-use project totaling about 1 million sq. ft.

The retail portion of the project was developed at a cost of more than $192 million. Ten lenders, including Bank of America, filed suit on the property claiming $160 million in unpaid loans, interest and legal fees.

The retail portion of the project is 72% occupied by anchors such as Dillard's, Cinemark Theater and Dick's Sporting Goods. “Opus did a nice job with the development, but it got caught in a market that was changing,” says Eric DeJernett, a senior vice president of retail in the Austin office of CB Richard Ellis.

Opus East is exploring Chapter 11 options due in part to a payment dispute with the General Services Administration for a 280,000 sq. ft. federal building being built for the National Oceanic and Atmospheric Administration in Riverdale, Md.

Opus has already invested about $35 million in the project, which was initially scheduled for completion in December. “That project in particular has led to liquidity issues of Opus East and compounded the financial strain on that independent operating company,” Hewett explains.

Because of the decline in property values and lack of liquidity, it is likely to be a long, slow uphill climb to recovery for Opus, as well as the broader commercial real estate market.

“You're likely to see more of these bankruptcy cases,” says Haddigan of Marcus & Millichap. “There are still a lot of owners and developers hanging on by threads, and there is no light in the tunnel in terms of the capital markets recovering.”

Beth Mattson-Teig is a Minneapolis writer.

HISTORICAL SNAPSHOT OF OPUS CORP.

Independent operating company	Year established	Total sq. ft. built
Opus Northwest	1953	84.8 million
Opus North	1972	47.1 million
Opus West	1979	52.7 million
Opus South	1981	27.3 million
Opus East	1994	13.3 million
Source: Company