The phrase “bon marché” generally means cheap or inexpensive. But turning the former Bon Marché Mall on Florida Boulevard into the Bon Carré Business Center has hardly been cheap.
A shift in ownership may be on the way for the development, although the deal is on hold and the details are somewhat shrouded in secrecy. Indications are a sale of the property may be involved.
Not that secrecy is unusual when it comes to private-sector real estate deals. But since the Baton Rouge Area Foundation and the taxpayer-backed Research Park Corporation are involved in this one, a certain amount of interest is natural.
A California-based group, including developer Norie Harrower, in 1999 had detailed plans for a $40 million mixed-use redevelopment of the dilapidated circa-1959 Bon Marché shopping center, in what was then a crime-ridden part of town known as “mall city.” But that deal had fallen apart by 2002, after one of Harrower’s business partners was found to have been running a massive Ponzi scheme.
In 2003, a local ownership group stepped in to save the project. They paid $9 million for the property and, the story goes, pulled it back from the brink of foreclosure. Source Capital, led by Kevin Couhig, was part of that group. He says the price of $10 or so per square foot seemed like a good opportunity.
“Source Capital was started by the Baton Rouge Area Foundation and the Baton Rouge Chamber of Commerce,” Couhig says. “From the very beginning, we’ve had an orientation to make our investors money, but also to try to do some good.”
Couhig was out of the country when reached for this story, and did not have numbers in front of him for reference. But he says Source got out of the deal fairly quickly, after perhaps a year or two, and made a decent return.
From 2003 to 2006, according to the city-parish, owners invested some $35 million rehabbing the property. The current owners are the Wilbur Marvin Foundation, which holds most of BRAF’s real estate, and the Research Park Corporation, the state-subsidized entity that runs the Louisiana Technology Park incubator based in Bon Carré.
BRAF says the foundation owns a controlling interest of about 51% in Bon Carré. The RPC’s share is about 25%. Others holding smaller slices include John Noland, chairman of the East Baton Rouge Redevelopment Authority; RPC Chairman Terrell Brown; and Gulf Coast BIDCO, led by Cornelius Lewis, also an RPC board member.
If the RPC sells, the foundation would own 63%, with the rest spread around to the other investors, BRAF says, adding that about 90% of the center’s 850,000 square feet is occupied.
Brown says his and Lewis’ ownership interests in Bon Carré don’t violate ethics guidelines, since he and Lewis recuse themselves on votes involving the development. For the RPC, such a move would provide a chance to get out of the real estate business, Brown says. “We have an illiquid investment,” he says. “We want to do some other things with the money.”
Brown says his personal interest is only about 3%. He says the project has a positive cash flow, but adds that he doesn’t think he has received any distributions from his stock.
Joel Harrell, a planner in the city-parish Office of Community Development, says Bon Carré is considered the hub of the Melrose East Economic Development initiative. As such, it receives property tax abatements that are scheduled to run out after 2015, when the taxes would go up by almost $856,000 a year.
The community development office estimates the total value of the development at about $58.3 million. A source with some knowledge of the deal says a similar number was derived from an appraisal conducted in 2007, which was a high point for the real estate market. The property almost certainly wouldn’t be valued as high today as in 2007.
Meanwhile, the property carries significant mortgage debt. In 2009, which is the last year for which BRAF has posted audited financials on its website, about $41.2 million was left on the loan. The note requires monthly payments of $240,340, with the unpaid balance due in April 2017. Typically, an owner would try to refinance by then. The loan is non-recourse, although the servicer could take control of the property.
The RPC’s sale is on hold for unexplained reasons. BRAF, through its spokesman, refused to comment further about the Bon Carré deal until it’s done. Eddie Ashworth, the RPC board member who is their point man on Bon Carré, also declined to comment.
One source who spoke on condition of anonymity says that, taking into account operating costs, distributions due to the preferred stockholders, and the impending tax increase, it’s hard to see how the project would have enough cash flow to cover its debts going forward. Getting free of Bon Carré might be a good deal for the RPC, that person says, while expressing wonder that BRAF would want more of this asset. BRAF’s audit says it lost $710,585 in 2009 on Bon Carré.
On one hand, Bon Carré may be a losing asset in BRAF’s portfolio. But on the other hand, the foundation isn’t just about making money. From a community-impact perspective, breathing life into the old Bon Marché might have been a good deal after all.
The history of Step One Ventures isn’t as long or as convoluted as that of Bon Carré. But it has been a bumpy ride nonetheless. More…
