2013-12-12 / Front Page

Clarke Loan to Default

By Tom Shevlin

City officials were expected to allow the troubled Clarke School Limited Partnership to default on a federally-authorized loan repayment issued by the city that has become the source of heated debate between City Council members in recent weeks.

According to Mayor Henry F. Winthrop, the city was preparing to allow the private real estate firm that manages the Clarke School apartment complex to miss a scheduled $1.3 million balloon payment and would seek out legal recompense in the courts.

The Clarke School Limited Partnership was formed in 1993 to redevelop the former John Clarke Elementary School into a low income and senior housing complex, which currently houses 64 apartments. Earlier this year, it requested a 12-month extension on a loan payment that was due to be made to the city no later than Thursday, Dec. 12.

While a similar request was granted last year, Councilor Michael T. Farley raised concerns over the latest request earlier this fall, arguing that the city should take a tougher stand in collecting the funds, which were originally granted through the federal Community Development Block Grant program in 1994.

By allowing Clarke School Limited Partnership to extend its obligation without penalty, Farley ar- gued the city would be losing out on needed revenue that could be applied toward next year’s budget.

From there, the mayor said that he expects the city to pursue “appropriate legal action” to collect on the debt, which would then be invested elsewhere in the budget.

A first mortgage taken out to develop the property in the mid 1990s is held by Rhode Island Housing Corp. and is set to mature in 2025. At issue is the second mortgage (which the city holds) that was due to mature in 2012.

According to Howington, in the fall of 2012, citing high interest payments owed on the first mortgage and a stagnant income stream, the project’s owner, Gatehouse Management, Inc., indicated that they were unable to pay the loan in full.

Since then, they have been working with various officials at R.I. Housing to restructure their deal in order to pay back the city.

However, after several meetings last year, no agreement could be reached.

According to Gatehouse executives, R.I. Housing carries a 9.5 percent interest rate on the property – a princely sum in current market terms – and has been unwilling to adjust the loan in order to accommodate either the city or the building’s owners.

That has left the city in a precarious position.

Howington met with representatives from R.I. Housing and Gatehouse Management as recently as Nov. 26, at which point, an offer presented by the city was rejected and countered with a proposal to extend the note and amend the amount of cash flow the city receives from the building’s operations.

However, Howington – citing the direction of the council – recommended that the proposal be rejected and the loan allowed to go into default.

Indeed, Winthrop said that the city does plan on pursuing full reimbursement, but only after the company records a default.

Howington would not rule out the possibility of foreclosure.

For Gatehouse, that possibility looms large, and it warns that the failure to extend the note could result in the loss of the senior affordable housing status for the apartment building.

“Obviously, we both agree that this would not be in our best interests, nor in the interest of our senior residents,” said Roger Yorkshaitis, a managing partner with Clarke School Limited Partnership.

City officials, however, note that such an end result is unlikely, as R.I. Housing maintains the primary note.

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