1 sector's problems tarnish Levis Commons' success

People still flock to Levis Commons to shop, relax, or eat. The main shopping portion of Levis Commons, known as the Town Center, is financially sound. The Town Center is 92 percent leased and has just three vacancies, says Charlene Scott, the Town Center's general manager.

Pick any sunny day at Levis Commons in Perrysburg and you'll most likely find shoppers browsing store windows on its villagelike streets, relaxing while sipping coffee or eating frozen yogurt, or heading to one of its 11 restaurants.

But where shoppers and outsiders only see a booming, bustling, successful lifestyle center -- and by nearly every definition Levis Commons is a success -- parts of the four-phase, 400-acre shopping, entertainment, and housing complex that opened eight years ago are mired in financial problems, one of which does not figure to be resolved anytime soon.

One segment containing a strip-center string of retailers was foreclosed upon by lender Fifth Third Bank, which now has taken possession of the strip center. Fifth Third also foreclosed upon and took possession of a 10.5-acre parcel of vacant land slated to be Levis Commons' fourth phase of development.

Another of the development's segments, one with a building filled with retailers and a chunk of vacant land, has been foreclosed upon and is in receivership. Its prospects for a new owner look slim at this point.

But, "In general, Levis Commons, as a concept, is working just fine," insists Larry Dillin, Levis Commons' developer.

Mr. Dillin, who gets credit for the lifestyle center's success but also is tied to its problems, said that for the most part, the complex at State Rt. 25 at I-475/U.S. 23 is thriving.

"The retail tenants have rebounded, the [Hilton Garden Inn] hotel is doing extremely well, the apartments are doing well, and there's significant interest in land sales," he said. "The only thing that's a challenge that is left is this bond issue. We have agreements on everything but the bond stuff," he said.

The "bond issue" refers to $14.2 million in special assessment bonds issued in 2007 by the Toledo-Lucas County Port Authority and used to build infrastructure for a second phase at Levis Commons.

The phase, known as the Town Square because it incorporates a roundabout with a large clock tower, includes a nine-acre parcel with a 67,000-square foot, three-story retail/office structure called the Orleans building, plus a six-acre parcel that contains the 184-room Hilton Garden Inn.

Under terms of the bond issue, the bonds were to be paid off over 27 1/2 years with biannual principal and interest payments that started in November, 2007. Payments had been made regularly, but Joe Bajas, a financing programs specialist for the port authority, said that while interest payments have continued, payments on the principal ceased last November.

As a result, Fitch Financial ratings service recently downgraded the bonds to "D" default status from an earlier BB rating.

The bond troubles stem from three complications: the way the bond issue was written, difficulties with developing the Town Square segment, and financial difficulties facing Mr. Dillin.

Under the bond terms, 38 percent of the bond payments are collected from the Hilton Garden Inn property, which is financially successful. Mr. Dillin, who originally had a stake in the hotel, sold that stake to the hotel owners, Gateway Hospitality Group of Twinsburg, Ohio.

The other 62 percent of the bond payment is to be collected via rents from tenants in the Orleans building and a planned second building that was never built. Before Mr. Dillin could build it, the project's lender, Huntington National Bank, pulled its funding.

Eventually, Mr. Dillin defaulted on a combined $12.4 million in loans from Huntington provided to finance construction of the Orleans building and development of the vacant land. In February, Huntington foreclosed on those loans, but it has yet to take possession of the property.

Technically, Mr. Dillin still owns the Orleans building and its adjacent nine acres. But he has no control over the land or Orleans building because both were placed in a court-ordered receivership in January, 2011.

Receiver Steven Skutch has had control over the Orleans building for the last 17 months. According to a report Mr. Skutch filed in May detailing revenues gathered and expenses paid from Feb. 24, 2011, through April 30, 2012, the property has generated income of $670,505 but incurred expenses of $601,730.

Included in those expenses was a $395,000 mortgage payment to Huntington Bank. Nothing was paid toward the bond, and the receiver's account has a $68,775 surplus.

The Orleans building has three major tenants: Fat Fish Blue restaurant and Funny Bone comedy club, Nagoya restaurant, and St. Julian's Fitness Club. It also has two smaller tenants, WTOL TV and a wine and martini bar.

Commercial real estate firm Signature Associates has been hired to market the vacant 24,000 square feet of space in the building in an attempt to fill it and maximize its rent potential.

Signature agent Megan Malczewski said "there's been definite interest and inquiries" from prospective tenants.

Mr. Skutch recently ordered an appraisal of the building to help procure a sale of the property. But he stated in his May report that the special tax assessments, which generate revenue for the bonds, have been a hindrance to finding any qualified buyers for the property.

A package deal

Further complicating the attempt to find a buyer is that the Orleans building and the adjacent nine acres of vacant land cannot be sold separately.

"The bond situation is a very unique scenario," Mr. Dillin said. "The Orleans building and the vacant land are on one tax parcel. That means it works fine with one lender. But you can't bring in another lender, and you can't have two lease holder lenders.

"So Huntington is stuck. They either fund their way out of it by building the second building or they walk away from it. It has a mounting tax debt and special-assessment debt. Somebody will have to pay that off, and in addition, you have to pay special tax assessment going forward," Mr. Dillin said. "So there has to be some way to either unravel the bonds or find someone willing to fund construction of the second building."

Huntington said it does not discuss its business arrangements with its customers.

Even the Orleans building has not been as financially productive as expected.

When Mr. Skutch took over, "The majority of the tenants were not current with their lease-rate rents and [common area maintenance] charges," he wrote.

One tenant, Trace Routes, was forced to move out, and Mr. Skutch found that only one tenant was paying its full rent.

Mr. Dillin said when the building opened in 2007 most of the tenants had invested their own money in the building to convert sections for their own use, and were given periods of free rent or discounted rent, a practice customary in commercial real estate.

"Trace Routes was struggling, but everybody has been paying some rent. I discounted some rent for some struggling tenants to give them an opportunity to survive," he said. "Rather than press people to perform in the horrible economy, I discounted their rent so they could keep their doors open. Now they're successful."

Financially sound Center

While the Orleans building has a financial web of bond responsibility, Huntington's unpaid debt of $12.4 million, and an unknown Wood County tax liability that at one point in 2011 totaled $1.7 million, the main shopping portion of Levis Commons, known as the Town Center, is financially sound. It has three owners: Mr. Dillin, mall management firm Hill Partners Inc., and an unnamed investor.

Charlene Scott, the Town Center's general manager, said that portion of Levis Commons is thriving. The Town Center is 92 percent leased and has just three vacancies, with a tentative commitment for one space and a very interested party for another.

Ms. Scott said that when visitors come to Levis Commons they often mistakenly think the 400-acre complex has one owner.

In fact, it has 34 owners, according to Wood County records.

Some of the owners are private individuals who own condominiums, some are retailers who own their own land and buildings, some are investors who own vacant land or retail strips not in the Town Center area, some are institutions like Bowling Green State University, and some are partnership companies, like Levis Commons LLC or Levis Luxury Community LLC that own large sections of the development.

"I think the market misreads what they read. A story will say 'Levis Commons' and they assume that's [the Town Center] and it's not us," Ms. Scott said. "The market doesn't understand that there are a lot of different owners out here with a lot of different interests."

Preston Place

Huntington is not the only lender to have foreclosed on property in Levis Commons. Last year Fifth Third Bank took possession of one of Mr. Dillin's properties, Preston Place II, in exchange for forgiving some of his debt. The property is a strip center with several stable tenants, including the popular boutique Fiddle Stix, a jewelry store, a cleaners, and a mattress store.

Fifth Third is marketing available space in Preston Place with help from Signature Associates, but the bank is also using the firm to try to sell the 23,000-square-foot strip center. It is asking $2.5 million.

Germano Bressan, the Signature agent marketing the center, said Fifth Third also repossessed 10 acres of land near Roachton Road that was meant to be the fourth phase of Levis Commons. It is asking $1.9 million for the land.

Mr. Bressan said there have been multiple offers for the land. And he said interest in Preston Place has been increasing, both from a leasing and sale standpoint.

Ms. Scott of Hill Partners said that while many of the areas of Levis Commons have different owners, they remain tied together by a central architectural committee that works to uphold standards of the development. So even if new owners take over sections, Levis Commons will continue to look and feel like one entity to visitors, which benefits all, she said.

Mr. Dillin said his intent always was to have multiple owners at Levis Commons. "It's a 400-acre development that was never meant to be under one ownership. I always intended to sell off portions of it and maintain ownership of strategic properties," he said.

However, he admits he never envisioned some ownership changes would come through foreclosures and forced financial restructuring.

Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.