Galtier Plaza - Financial Difficulties

Financial Difficulties

The project cost at least $140 million to build (not including the YMCA and other portions). Various parts of the project were funded separately: the rental apartments were funded by bonds sold through the Port Authority to private institutional investors; the YMCA was on a separate parcel; and much of the other private funding came from investors as equity and from Chemical Bank as a loan.

The project was a very large undertaking for any developer and was apparently more than its developer could handle. There were problems with construction, cost overruns, inadequate financial resources, high interest rates, delays, and strategic errors made in market analysis and design (for example, the retail areas were targeted toward upscale shops which require a greater critical mass, and the food court was located above the main circulation paths rather than in its current more accessible location).

As the project was delayed, it began to founder, and soon found itself having difficulty attracting new tenants. Eventually, private investors are said to have lost about $42 to $45 million in equity and Chemical Bank is said to have lost about $90 million on their loan. It is unclear how much public money may have been lost. The Port Authority took over the rental apartments after the default on that part of the project -- for which they had loaned $32 million and which would have cost about $36 million.

Excluding the YMCA, rental housing, and the energy plant, the balance of the project (retail, offices, condos, and the parking garage) was sold in 1989 to a Canadian investor for (reportedly) in the range of $10 to $12 million. This transaction took place immediately before the recession and steep decline in property values began.

Henry Zaidan's strategy was to aggressively market the condos, and to "reposition" the retail space from the regional high end target and toward services for the neighborhood and downtown. He also relocated the food court to the ground level.

After struggling to fill the vacant retail and office space during the recession, Zaidan left the Galtier Plaza project in 1992, and in 1996 the holder of the mortgage obtained title through foreclosure, changed the management company and made some nominal improvements before selling Galtier in 2000 to an investor group managed by Wasmer, Schroeder & Company. The Wasmer group invested in an extensive remodeling project, including conversion of much of the vacant retail space into office space. The residential towers at Galtier were sold to Bigos Investments in 2003, and the Wasmer group sold the commercial and parking facilities in 2006 to a group based in California. The commercial portion of Galtier now contains several restaurants, a convenience store, a conference facility, and a credit union. Retail and office space are about 85% occupied.

From the point of view of its impact on the area, the project now appears to be successful. It brings residents, office workers, students and shoppers to Lowertown and contributes substantial property taxes (over $1 million per year) and sales taxes to the city. By most reckonings, however, this would not be a sufficient return to justify the public investment.

In an interesting assessment of the trade-offs between image and economics, an economist was brought in to shed light upon the balance between the projects' likely ability to succeed financially and the perceived benefits of having a large, visible project (with tall towers) from the point of view of the city's decision makers. The economist maintains that the symbolic values appeared to have overcome financial considerations, in the sense that there was not a clear justification for a project of this scale in terms of demonstrated market demand. The city and the developer had to believe, in effect, that the large-scale image would supposedly contribute to creating its own demand and would change the market. The history of the project is too complex to argue that its (temporary) failures prove that this line of reasoning could have been shown at the time to be incorrect and the LRC argues that it did attract other investments that might not otherwise have been made.