The Miller and Rhoads project is one that will be somewhat controversial for years to come (for the wrong reasons) and its ultimate fate, while yet to be officially announced, is more or less, already determined.
M/R is a mixed us project that blends roughly 140 units of residential condominiums with a hotel (Hilton Garden Inn) and some other street level commercial spaces. The developer (HRI Properties of New Orleans) purchased one of the old signature buildings along Historic Broad Street (The Miller and Rhoads Building) and attempted to convert the property to an upscale mixed use condo/hotel property. At the end of 2011, roughly 30 of the residential properties have been sold (of 140).
An unfavorable ruling by the GSE’s (Fannie/Freddie/FHA) with regard to financing effectively sealed its fate by ruling that the condo portion of the project did not fall under the guidelines for condominium finance but rather, took the stance that condos plus hotel equals the dreaded ‘condotel,’ despite the fact that both entities were to operate independently. The fact that the hotel is in the dominant position for HOA purposes also did not help. Condo/Hotels (Condotels) are no-no’s in the eyes of Fannie and Freddie and that ruling prevented any conventional financing from EVER being used to fund a purchaser’s mortgage debt. This manifests itself in significantly higher down payments, higher interest rates and shorter terms. ‘Alternative financing’ (meaning finding a bank loan that is not a conventional/GSE backed mortgage) also puts a question mark in potential buyer’s minds (and rightfully so) and can be the death of a project, especially one on the scale of M/R.
At some point, M/R’s only true option will to become an underperforming apartment project (upscale condos built in 2008 don’t cash flow well as apartments) and when this happens (which it already is) my sense is that the existing owners will be involved in the legal wake of a collapsing and underfunded HOA. As with the case of so many high profile failures of Richmond’s past, it is likely that the marketplace will somehow view this as a failure of City Hall and (at least in this case) that is nowhere near the correct interpretation of what happened.
The condos at M/R failed the minute the word hotel was uttered and the developer did not understand the ramifications of combining the two. I hope that the distinction will be made by the public and it will not be interpreted as either lack of demand or a failure of city leadership.