Norristown Foreclosure Could Cost County $24M

The senior lender behind the Logan Square development project, located at Markley Street and West Johnson Highway in Norristown, filed for foreclosure on the property on May 3, putting in jeopardy a $24.5 million investment the county made to the development between 2009 and 2011.

The project began in 2007 when Charles Gallub, principal at Develcom in Bellmawr, NJ, began working with government officials and a private investment group, Axis Advisors, LP, to develop the 24.5 acre site, including the abandoned Sears and Ports of the World, totaling 150,000 square feet in retail space.

A plan to bring Raleigh Studios to the property fell through after failed negotiations over tax credits with the Commonwealth of Pennsylvania, and the plan was repositioned to fit out the Sears building for USMaintenence, creating an anchor tenant for an office campus.

To ensure the funding for US Maintenence, Montgomery County Board of Commissioners in 2010 and 2011, composed of Joe Hoeffel, Jim Matthews and Bruce Castor, voted to provide $24.5 million in grants, loans and guarantees to the project, including guaranteeing a $10 million loan through the U.S. Department of Housing and Urban Development (HUD), and helping Norristown with an additional $5 million HUD grant.

Montgomery County Commissioner Josh Shapiro did not comment in detail as to why he believed the board voted on the investment.

According to Shapiro, the county, lender and developer determined the project not to be viable in March of 2012, due to the value of the property and the outstanding debt, at which time the lender asked for an additional $11 million investment from the county to continue work to fill the space.

The county did not make the additional investment after the lender refused to modify the terms of the agreement to provide additional security to money contributed by the county.

Shapiro said that the primary issue regarding the agreement was that the county was put in second position, meaning that the county would only be paid by the developer after the lender recouped $34 million.

“It was determined that the project was not viable given its debt structure, even with the $11 million infusion of cash they requested from the county,” said Shapiro.

The county now waits while the restructuring process occurs, and will work to extract any value that may be available for recovery for the taxpayers.

“Given the present economic reality of the project, it is entirely possible that the county will not be able to realize any return from the investment made in 2011,” said a memo from county officials.

The county may also be obligated to pay back a $6.2 million guaranteed revenue bond, among other outstanding payments.

Shapiro did say, however, that he was working with U.S. Senator Bob Casey and HUD officials, regarding the development’s outstanding HUD Loan, which could lead to the organization withholding up to $10 million in future funding.

“I'm going to do everything I can to mitigate the negative impact on the future of the county by meeting with Senator Casey, meeting with HUD, to see what we can do,” said Shapiro.