What Opus East started is now finished
For all the developers during the bubble who borrowed too much money and made overly inflated projections about how much they could earn back, Opus East was the only one in Washington that went completely belly up.
The eastern arm of what is now known as Minnesota-based Opus Group, Opus East had offices in Rockville and was active in some of the area’s hottest neighborhoods until it filed for Chapter 7 bankruptcy in July 2009, opting to liquidate its holdings rather than try to resuscitate them.
Three years later, however, some of the company’s Washington area deals found success long after the team that acquired and designed the projects scattered. Two of the projects were recently completed with money from the bank providing original financing, and both have found new buyers.
A partially built 268,762 square-foot College Park research center for the National Oceanic and Atmospheric Administration was abandoned when Opus East filed for bankruptcy, with an estimated $60 million in construction still needed. A 10-story office project at 1015 Half St. SE was left as a skeleton.
The NOAA project became the final blow for Opus East executives after the General Services Administration began seeking cash for overruns at a time when the company was dangerously short on cash, according to former Opus East chief executive James Lee.
“I think it really was NOAA,” he said. “The NOAA project was particularly painful for senior management at Opus. It had significant repercussions in terms of the available cash and it was a major commitment. I think the decision to close down [Opus] East, as they closed down South and West … that was the thing that drove it. There was a tremendous amount of equity invested, and GSA dug in their feet on when the money needed to arrive.”
Bank of America had nearly $300 million in construction loans on the two projects. When Opus ran into trouble, the bank asked for a court-appointed receiver, Douglas Wilson Cos. of San Diego, to manage the properties. “I think many financial institutions would have just said, ‘Let’s liquidate our position,’” Douglas Wilson said. “You can sell a partially built building, but you’ll probably get 30 cents on the dollar.”
Instead, Bank of America stuck it out — a testament to the strength of the Washington market. Wilson brought in new contractors to finish the projects with Bank of America funds. New York-based Acquest Development bought the NOAA building at the end of last year and Prudential Real Estate Investors is purchasing the Half Street building. Bank of America spokeswoman Shirley Norton said in an e-mail that the bank was “for the most part, repaid.”
Not all of Opus East’s assets have fared as well, but Lee said he still regrets the company’s decision not to do more to find some working capital at the time. In deciding to liquidate its assets, rather than file for Chapter 11 protection, Opus East forfeited all of its equity in the projects, about $30 million on the NOAA project alone. “I think East had good projects and it would have taken very little, frankly, to fix it,” Lee said.
Opus Group did not return a call seeking comment.
In March, Lee became Northeast region director for Manhattan Construction Group.
“If you look at the history of our business, you will find that there is a universal truth about developers who make it through the low points of the cycle ... They never lose the faith,” he said. “In this case, it just comes down to management had lost the faith.”