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Colt Gateway Hits New Snag

Mortgage Holder's Financial Woes Affecting Progress, Developer Says

By JEFFREY B. COHEN, Courant Staff Writer

October 30, 2007

The continued transformation of the Colt Gateway project in Hartford into new apartments is running into another snag, as one of the project's lenders is threatening to foreclose on some of the site's properties.

The move wouldn't touch the two most visible properties - the South and East armories of the famous gun factory in Hartford - but it comes as the project's developer is trying to right a financial mess that has had the project stalled since May.

Robert A. MacFarlane says the threatened foreclosure - the legal papers have been prepared, but hadn't been filed as of late last week - is a negotiating tactic by a lender that is in bankruptcy.

MacFarlane minimized the problem, saying he and the lender, USA Capital, are negotiating an end to their arrangement. He said that could happen by the end of November and construction could resume not long after.

"They're rocking the boat to say, `Give me my money and give me my money now,'" MacFarlane said. "But they're not going to foreclose because we would sue the heck out of them."

The Colt Gateway project is a $120 million plan to turn the old gun factory with its blue onion dome, just west of I-91, into apartments and commercial space. Of that, about $65 million comes from construction loans, $35 million comes from tax credits and grants, and $20 million comes from private equity, MacFarlane said.

In May, construction slowed to a near stop as financial problems at USA Capital meant trouble for MacFarlane in his own search for cash.

USA Capital originally held the main mortgage for the entire Colt project, MacFarlane said. But as the developer got construction loans to begin work on individual buildings at the site, he paid down the outstanding USA Capital debt.

Now, USA Capital holds mortgages on four of the site's properties with a total value of about $10 million, McFarlane said.

In an effort to clear more of his debt to USA Capital, MacFarlane says he has twice secured commitments for construction loans. But he said that internal fighting at USA Capital kept the deal from closing.

"They wouldn't close," MacFarlane said. "They're still fighting. They can't get their act together."

An attorney for USA Capital declined to comment.

The impasse is stalling movement on a city plan to help fund the project. The city is working with Colt to issue about $8 million in bonds, of which $6 million to $7 million would go to the project itself.

But the paperwork cannot be finalized as long as USA Capital is part of the mix, because of the company's financial problems.

John F. Palmieri, the city's director of development services, said the city is aware of Colt's issues and is hoping for the best.

"We have been notified that they're having serious trouble with their creditors and their equity partners," Palmieri said. "We'd like to go forward ... but we won't do it until we know they have financing."

MacFarlane said he is also in the process of drafting a formal request for $12 million in state funds. He said he needs the money because of unanticipated engineering issues, as well as to help bridge the gap between the high cost of finishing the buildings and the relatively low Hartford rents he gets paid.

The state already has roughly $3.5 million invested in Colt Gateway and has another $1 million available. State Commissioner of Economic and Community Development Joan McDonald said Monday that the state would only release those funds with a guarantee that USA Capital is out of the picture.

MacFarlane says he's put close to $15 million in cash into the project.

"There's no one that wants it to go any more than we do," he said.