Bringing fore closure: as hard times drag on, developers catch heat from lenders worried about losing money in a weak real-estate market.

• Author: Maley, Frank
• Position: FEATURE

On a weekend night, EpiCentre lives up to its name. Men, women, girls and boys stroll among its stores and restaurants, sometimes venturing inside or stopping to chat with friends. Occasionally, laughter erupts in the well-lit courtyard beneath the dark sky and all 60 stories of the nearby Bank of America Corporate Center.

But beyond the bright lights and bonhomie, a less cheerful saga plays out. Despite the crowds it draws and role it plays as an entertainment hub in the heart of downtown Charlotte, EpiCentre has generated plenty of ill will among the people who created it. Since it opened in late 2008, they've traded accusations--subcontractors claiming they hadn't been paid and the developer and general contractor pointing fingers at each other. Last summer, the project's lender got into the act. Regions Bank, a subsidiary of Birmingham, Ala.-based Regions Financial Corp., started foreclosure proceedings, saying developer Afshin Ghazi's Pacific Avenue LLC and Pacific Avenue II LLC had missed payments on a $90 million loan. To block foreclosure, both companies declared bankruptcy. After several months of stalemate, Regions agreed to sell the loan to a third party.

It's not an isolated incident. With the financial and construction industries wobbly from three years of recession and an agonizingly slow recovery, developers are feeling heat from lenders worried about losing a bundle in the weak real-estate market. That anxiety is manifested in escalating foreclosures of all kinds of properties--statewide, they were up 18.4% in October, compared with the year before. Perhaps hardest hit have been loans for acquisition, development and construction, says Ray Grace, N.C. deputy commissioner of banks. The big problem: Demand for space has plummeted. When developers can't find buyers or tenants, they have trouble paying back loans. "The banks will work with them for a reasonable period of time, but sooner or later they have to succumb to pressures on their balance sheets, and that's when they do the foreclosures."

Indeed, Ghazi says a bank's willingness to give struggling developers leeway corresponds with its own financial condition. "If a bank is on an FDIC watch list or they're a bank that's heavily invested in real estate, we're seeing a whole lot more pressure from them to do certain things--as opposed to a couple of Canadian banks that we've worked with that have not experienced much of a hit from the economy. They've been more business as...