Bank Buys Back Rhode Island Building at Foreclosure Sale

by on Foreclosures

The Gateway Center, a prominent building in downtown Providence in Rhode Island, has been acquired by U.S. Bank for $13 million at a foreclosure sale. The bank is the trustee for mortgage-backed securities holders on the building.

The bank’s bid of $13 million was the only offer made on the building. Typically at foreclosure sale, banks bid the total mortgage amount owed to them. According to industry experts, this is the second time in almost five years that banks took ownership of Gateway Center after borrowers missed on their mortgage payments.

During the auction, Joseph R. Paolino Jr., former Providence mayor and a downtown landlord, asked several questions about Gateway Center, including whether it has occupants and if taxes are current.

The downtown building has been vacant after Fidelity Investments relocated its workers from the city to the Smithfield offices of the company.

According to industry experts, Class A office spaces are clogging the Providence market. The Gateway Center belongs in this category which made it difficult for the 135,110 square feet building to attract tenants.

Compounding the problem of the building is its configuration into a single large tenant. Experts said that single large tenants prefer suburban settings which they deem more convenient compared with a downtown location.

Furthermore, the building is embroiled in a complicated financial arrangement. The Gateway Center stands on a land owned by Capital Properties. Since 2006, the land has been leased from Capital Properties by RI Gateway Properties, which owns the building. The lease for the land was later acquired by RI Gateway using an $18.8 million loan it took out from Wachovia Bank. RI Gateway secured the loan by mortgaging the property rights that it owned as part of the lease.

Industry experts explained that the foreclosure auction involves the lease owned by RI Gateway and not on the land ownership of Capital Properties. In short, Capital Properties has never been a part of the foreclosure process.

Experts added that the state pension system was the previous owner of the building’s lease until 2006. The state pension system took over the lease ownership after the previous owner defaulted. The pension system decided to sell the lease to RI Gateway after it got entangled in bankruptcy proceedings. The Gateway Center’s construction was made possible by a $23 million bond issued by Rhode Island.