While material contract volatility was their story, actually securing financing for the construction of One Rincon Hill’s second tower probably had something to do with their delay in breaking ground as well.

One Rincon Hill developer Mike Kriozere has obtained construction financing for the 319-unit second tower of One Rincon Hill and plans to start excavation work in May, the builder said.

Kriozere said Union Labor Life Insurance would provide the construction loan, roughly $195 million, which will finance 65 percent of the $300 million project cost. Kriozere is putting in 5 percent equity and an investment arm of CB Richard Ellis is putting in 30 percent.

As we reported last month, the contactor who will be building the second tower remains up in the air (or rather, perhaps not). And as we wrote, “the official groundbreaking and a quick construction start are now expected to occur at the end of April or beginning of May, but if it’s not Bovis doing the building we’d count on some additional slippage as a new contractor gets up to speed.”
UPDATE: A sentence that we should have highlighted as well: “[Kriozere] said sales on the second tower would likely start in spring 2009.
Developer Kriozere scores loan for second tower of One Rincon Hill [Business Times]
The Straight Scoop On What’s Up With One Rincon Hill’s Tower Two [SocketSite]

24 thoughts on “One Rincon Secures Financing For Tower Two (But Still Seeks Builder)”
  1. I wonder if the developer is unhappy with Bovis at the rate it has taken them to complete Tower One?

  2. It’s been a while since we’ve heard about closings vs cancellations in ORH.
    I wouldn’t be surprised if the developer had to show a certain amount of closings in tower 1 in order to secure financing for tower 2. if so, then this could mean that ORH closings are doing ok (obviously, this is pure speculation on my part)
    regardless, it’s a big positive to owners of ORH tower 1.
    it’ll be nice to get that second tower up IMO.

  3. Curious why Kriozere wasn’t able to secure financing for both towers in the first place?
    If it was their intention to build 2 towers, why wait so long and thus delaying the whole project for who knows how long?
    Doesn’t give a lot of confidence to the development and Rincon Hill in general.

  4. “Curious why Kriozere wasn’t able to secure financing for both towers in the first place?”
    Executing a large project in phases reduces both risk and capital requirements, lowering the barrier to entry for developers.

  5. “I wouldn’t be surprised if the developer had to show a certain amount of closings in tower 1 in order to secure financing for tower 2. if so, then this could mean that ORH closings are doing ok “”
    There is no question about that statement — AND — I would not be surprised if the developer needed to show progress on phase 2 in order to hold current purchasers in phase 1. remember they announced grounbreaking for ph 2 to be this january?

  6. “Executing a large project in phases reduces both risk and capital requirements, lowering the barrier to entry for developers.”
    Translation:
    1. It allows smaller, less established developers into the market.
    2. It keeps the window open for the developer to bail after building the first phase if they decide to abandone the project.
    Here’s an excerpt from the article about sales being delayed:
    “While construction was originally to start in March, Kriozere has slowed things down slightly. He said sales on the second tower would likely start in spring 2009.”
    Construction was originally suppose to start late 2007 and sales this spring, no? So basically it’s delayed around a year…

  7. Delayed by one year is not uncommon for large projects. Infinity’s second tower was stalled for a while and St. Regis was stalled for over a year mid-way through construction. In this environment its actually quite surprising that he would get financing this year. The doom and gloomers would have never predicted that Kriozere would be able to get financing.

  8. “I would not be surprised if the developer needed to show progress on phase 2 in order to hold current purchasers in phase 1.”
    Please elaborate. If they don’t build tower 2, does that give cold-footed contract holders in tower 1 an escape hatch?

  9. It does not give them a legal escape hatch.
    But is sure gives a feel of buying into a stalled out project — and undercuts confidence — esp when Infinity will be complete both phases.
    With Fifield and Turnberry stalled out atop RH at 340 fremont and 45 lansing — it would not be a confidence builder for ORH buyers if Phase 2 goes dark now.

  10. Here some more of the Biz Times article:
    While construction was originally to start in March, Kriozere has slowed things down slightly. He said sales on the second tower would likely start in spring 2009.
    Despite the lousy housing market he said average price per square foot for Phase One of the project is about $1,000, about 10 percent higher than when the sales office opened two years ago.
    “I don’t think you can time the market when you’re building a building that takes two or three years to do,” he said. “If the market is good, it’s a home run with the bases loaded. If the market is lousy maybe it’s a ground-rule double.”
    So I guess he is saying that it is all good – even in a “lousy” market, he is getting a 10% increase in 2 years and hitting ground-rule doubles.

  11. The land was bought for a song. The could sell at $500psf and still make money.
    They might have stalled to make sure they weren’t sitting on a pile of inventory in tower 1 when they were ready to start selling tower 2, but there isn’t any way they won’t build it.
    They will, of course sell at the market price. If it’s lower than the price of tower 1, so be it. If it’s higher, so much the better. A development right next door is not usually a good thing because it adds so much supply.
    Given the speed at which Paul’s listing at tower 1 got withdrawn, I’d say things aren’t exactly rosy, but I doubt it’s a catastrophe.
    As usual, watch what people, including ORH developers, do, not what they say. If things were rosy, they’d have let Paul make the sale, and trumpet the “instant equity.”. Instead, they appear to have forced the listing to be withdrawn.

  12. Tipster said “If things were rosy, they’d have let Paul make the sale, and trumpet the “instant equity.”. Instead, they appear to have forced the listing to be withdrawn.”
    Was it an issue that the likely sale price was below the contract price? If that’s the case, what happens if the dang thing goes into foreclosure. There isn’t anything that the developers can do then once these things start going to the banks. If one of them goes into foreclosure the pricing is not going to be pretty.
    Oh and I am pretty sure there is at least one of these on MLS— not sure if that was Paul’s or not tho.

  13. If a One Rincon buyer threatens to go into foreclosure, then wouldn’t the developer allow that owner to sell immediately?
    I would think that would be the better alternative than have a foreclosure or two in the building.
    How does a developer with a 1 year restriction on selling handle such a situation?

  14. Lending guidelines now require 10-20% down for all jumbo loans. The days of 0 down walk away in 6 months are gone. The chance of a foreclosure in the first year at Infinity, Rincon or any other new development is very unlikely. Why would someone put 10% or more down with no intention of making a payment?

  15. Good to hear that Tower II is moving forward. I’m guessing that one reason for the delay [among others] might be due to the softer R.E. market this year, hence the decision to delay sales for Tower II until 2009. Might not be a bad business decision as I imagine it may be a challenge completing Tower I sales and beginning Tower II sales at the Infinity this year. I certainly hope they do okay, else it may not bode well for Rincon Hill as a whole.
    In terms of ORH Tower I, strides are being made in terms of getting the common areas upto speed. The gym is finally stocked with new treadmills and while it is fairly small, ORH Tower II will contain a 5,000 sq ft gym … even though that will be at least a couple of years away. The entertainment room [twice the size of the one at the Infinity] is looking pretty sweet, even more so now that they have the huge TV [think 5′ diagonal] in there. The lobby finally got some plants and is beginning to look really appealing. It’s also larger than both the Infinity lobbies put together. Just giving some perspective here … not trashing the Infinity.
    In terms of the lower facade of tower I, it looks like there may only be a couple more weeks to go, and perhaps we will have the pool area by the mid to late summer? Hopefully Bovis will manage to redeem themselves by delivering the product as promised, despite clearly being way behind schedule.

  16. What makes a large cavernous lobby appealing?
    Most luxurious condos have small, intimate lobbies. Think Four Season or Regis. Infinity will have 4 seperate, occupied lobbies for each building.
    One rincons lobby reminds me of a huge Sheraton or Holiday Inn.

  17. Joseph,
    Not sure if you are aware of this, but the Sheraton/Starwood Group owns the St. Regis. And, to be honest, both the St. Regis and Four Seasons have more in common with the more opulent ORH lobby than the bare, impersonal Infinity ones, especially now that they have brought in a ton of flora and fauna. Now, if they would only get done with the construction around the entrance 🙂
    However, perhaps it’s a plus for people in the Infinity ‘treetops’ to have their own lobby, something that would not be the case for townhome owners at ORH.

  18. “However, perhaps it’s a plus for people in the Infinity ‘treetops’ to have their own lobby, something that would not be the case for townhome owners at ORH.”
    Not to be picky, but I thought that in order for a property to be considered a “townhouse”, each individual unit had to consist of multiple floors. Are the individual units at ORH multi-floored or is this a marketing ploy to distinguish the property from the condo market?

  19. Yes, I think the ORH town homes are multilevel. They actually look real nice in the renderings (except for the location, of course).

  20. OK. I see that the 2 bedrooms and up are multilevel, but the 1 bedrooms appear to be single level. I’ve owned 2 townhomes in 2 other states (Massachusetts & Texas) and I have to say that the ORH definition of that property type is definitely ‘unique’.

  21. I think its nice Infinity has separate lobbies and concierges for each building. The treetops must have only 50-60 units?
    I thought townhomes have to be not only multi level, but have separate entries.
    So how many of the ‘townhomes’ have One Rincon sold?

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