Real Development says it wants to pare its Wichita holdings; will auction 3 buildings
By Dan Voorhis
The Wichita Eagle
Three buildings in downtown Wichita owned by Real Development’s Michael Elzufon and David Lundberg are scheduled for auction on Jan. 11.
The Farmers and Bankers Building, 200 E. First St.; the Landmark Square Building, 212 N. Market; and the former Hubris Communications building, 216 S. Market, will be auctioned with no minimum bid, said auctioneer Whitey Mason, of Ameribid in Oklahoma.
Letters to tenants went out Wednesday, and posters advertising the auction went up on the buildings Wednesday afternoon.
Lundberg said Wednesday that he and Elzufon have no plans to auction any of the other Real Development affiliated properties locally.
“We just thought we would pare down our Wichita inventory and concentrate on the bigger properties,” Lundberg said.
They are auctioning off these three mainly because the buildings are costing them more than they are getting back in rent, he said.
The conjoined Farmers and Bankers and Landmark Square buildings are about 60 to 70 percent leased, Lundberg said. The former Hubris Communications building is leased to Mosaic Wichita, a church that serves the homeless.
Lundberg said Wednesday that he doesn’t expect to be able to pay off his Wichita creditors from the sales. The developers from Real owe more than $1 million from Wichita Executive Centre and other projects.
“It doesn’t hurt,” he said. “It may generate some cash for us. It may save us negative cash flow.”
He said they have other properties that are losing money, but he wouldn’t identify which ones.
The city of Wichita loaned Elzufon and Lundberg $152,613 to repair the facade of the Farmers and Bankers Building and $317,418 for the facade of Landmark Square, said Deputy City Attorney Brian McLeod.
The special assessments to repay the loans are attached to the building. The buyers would be responsible for paying them.
“If anything, it might be more favorable to the city,” McLeod said. “They are perceived to be people who would be better able to pay, whereas the current owners have gotten in a position where they are a little more strapped for money.”
Mason said he knows of no other lien holders on the properties other than the mortgage holder.
Elzufon and Lundberg bought more than 10 downtown buildings beginning in 2004 and renovated and sold off much of that space to investors as individual floors. But the recession and credit crunch beginning in 2008 dried up the pool of small real estate investors and hindered their ability to refinance loans, cutting off their cash supply and halting their projects. Many of the small investors later went into foreclosure.
Elzufon and Lundberg attempted to push ahead in 2009 and 2010 with a large-scale renovation of Wichita Executive Centre, 125 N. Market, but that stopped in mid-project when the money ran out, leaving contractors unpaid and city officials unhappy. Lundberg said Wednesday that he continues to expect a dormant apartment renovation project at Exchange Place, valued roughly at $50 million, to be revived, although it would require participation by the city, which some have questioned.
And on Nov. 7, Elzufon and Lundberg were named – along with several others – in a cease-and-desist order issued by the Kansas Securities Commission. The order alleges that those named violated the Kansas Uniform Securities Act by attempting to deliver fraudulent life settlement policies to a Topeka bank and unknown investors, according to the commission.
Several tenants of the buildings said they weren’t surprised by news of the auction, given Real Development’s history of legal and financial troubles.
“I guess I wasn’t that surprised after seeing they had troubles with the securities commission, but they’ve treated me well,” said attorney Morris Birch.
Tim Witsman, president of the Wichita Independent Business Association, agreed his group has had a solid relationship with its landlord, but said this creates uncertainty.
“Who would buy it? How much would they ask?”