Gilbert Gateway Towne Center faces foreclosure

Gilbert Gateway Towne Center is facing foreclosure, but owners and real-estate analysts say tenants and shoppers have nothing to fear.

The Business Real Estate Weekly of Arizona reported in July that the 455,500-square-foot retail center on the northwestern corner of Ray and Power roads is collateral for a loan that has fallen into default.

The loan, which originated in 2005, was for $50.2 million. Its current balance is $48.6 million.

Unless a settlement is reached, the 50-acre property will go to a trustee sale on Oct. 28.

Gateway Towne Center, which opened in 2005, was built by Vestar Development Co. of Phoenix in a joint venture with Mesa-based Circle G, a property-development company.

The borrower in default is Power & Ray LLC, which includes UBS Realty Investors LLC in San Francisco and a Vestar affiliate that manages the center.

According to Ion Data, a Mesa-based real-estate analysis company, Vestar sold nearly all of its interest in the center and in two other Valley projects to UBS in 2006.

Allan Kasen, general counsel for Vestar Development Co., said the company retains 2.5 percent ownership in the property.

The retail center, which includes Super Target, PetSmart, Cost Plus World Market and Ross Dress for Less, is 93 percent leased, a "pretty good" occupancy rate, Kasen said.

Jason Barney, managing principal of Circle G as well as a land developer, community activist and member of a pioneering Mesa family, said neither he nor his company is involved in the project any longer.

Barney is listed in Arizona Corporation Commission records as a representative of a separate entity, Power & Ray I LLC, which owns several adjacent properties.

The southern end of Towne Center, on 30 acres on the southwestern corner of Ray and Power roads, is owned by Gilbert Chandler Heights LLC and Walmart Stores Inc. None of those properties is facing foreclosure.

The situation is not expected to have any effect on the center's tenants, according to Zach Bowers, a real-estate analyst with Ion Data.

"It's a good location (and) has good tenants," he said. "It should be business as usual for them. If things do get bad, the bank can place it in receivership.

"But that's like the atomic option used only if they determine the current ownership is letting the property go."

And that, Bowers said, is highly unlikely given that Vestar, the original developer, not only manages the property but still retains a portion of ownership.

According to the Business Real Estate Weekly of Arizona report, UBS has long been a buyer of office, industrial and multifamily real estate in the Valley.

Officials at UBS did not return phone calls on the default.

Although UBS is in charge of lender/loan relations, Kasen believes that a settlement before the scheduled trustee sale is likely, especially since UBS and Vestar settled a similar default late last year on the Happy Valley Towne Center, an 812,000-square-foot facility off Interstate 17 and Happy Valley Road in north Phoenix.

"I'm confident it will be worked out," he said.

Bowers noted that it is not uncommon for borrowers to use a loan default, or the threat of a default, as a tactic to pressure a loan holder into renegotiating terms.

Although foreclosures can be painful for those involved, he noted, they're not always bad.

When markets have dropped as dramatically as they have over the past few years, he explained, defaults can serve to realign real-estate prices with market values.

by John Stanley The Arizona Republic- Aug. 10, 2011 05:32 PM



Gilbert Gateway Towne Center faces foreclosure