News Column

Rotting Norfolk properties coming back to life

February 15, 2014

By Tim McGlone, The Virginian-Pilot

Feb. 16--A go-go bar, a Hell's Angels clubhouse and decaying, empty buildings aren't what the city envisioned for the Granby Street corridor from downtown to Park Place.

But that's almost what it was stuck with because of illegal financial maneuvers between two former top executives at Bank of the Commonwealth and so-called "friends of the bank," who received millions in loans for those buildings, only to leave most of them rotting.

The buildings have now been freed up and are being redeveloped -- another boost for a corridor that's been a focus of Norfolk's revitalization efforts over the past few decades.

"I think, as bad as the whole Bank of the Commonwealth thing was, in the end that probably will be one of the best things that has ever happened to downtown," said developer Frank "Buddy" Gadams.

Gadams and others have scooped up former bank-owned properties downtown that had been used as pawns in a vast conspiracy that led to the collapse of Bank of the Commonwealth and the imprisonment of its top two executives and several key loan customers.

Former bank president and CEO Edward J. Woodard is serving a 23-year prison term for his role in the conspiracy, and former executive vice president Stephen Fields is serving 17 years.

A jury found them guilty of conspiring to hide tens of millions of dollars in bank losses from investors, regulators and the bank's board of directors. They did it in part by approving loans to favored customers Tommy Arney, Eric Menden and George Hranowskyj, who used the money to pay off bad loans and cover account shortfalls. All three also are in prison.

Arney, a restaurateur and developer, became such a favored customer that Woodard let him use an office on the third floor of the bank's headquarters on Boush Street.

By 2008, Arney had more than $7 million in outstanding bank loans and could not keep up with his payments. Despite being warned by regulators not to issue him more loans, Woodard and Fields continued to sign off on millions for projects that never materialized.

For example, in August 2010, Woodard and Fields approved a $325,000 loan to Arney for the purchase of two vacant storefronts at 763 and 765 Granby St., in what is now the city's budding arts district off Olney Avenue.

Instead of renovating the buildings, Arney used the money to pay his bills, including other past-due loans. The buildings, meanwhile, continued to decay.

That was the way the bank executives operated through those troubled years in an effort to keep the bank afloat. Loans were approved for building after building with little to no effort made to actually rehab them.

Arney also owned three buildings on Granby Street in Park Place. He obtained them through loans from other banks but was renovating one of them in part with Bank of the Commonwealth money, court records say.

In 2012, Arney had planned to turn that building at 2512-2514 Granby St. into a clubhouse for a faction of the Hell's Angels, despite not having zoning clearance for such a club, according to city officials.

The city was quick to quash the plan. A fire marshal first noticed that Arney had boarded up all the first-floor windows. A closer inspection found that Arney also had sealed off three or four exits and installed 20 surveillance cameras, according to Cynthia Hall, an assistant city attorney who worked to shut down the clubhouse.

Arney and Hall had a long history of unpleasant encounters, and this was no different.

"He refused to cease the unlawful construction activities," she said. "He became rather abusive to city staff."

As the code violations mounted, the city finally labeled the building structurally unsound and ordered everyone involved to stay out. Hall said that by then some Hell's Angels had moved into rooms upstairs and were forced to leave. (One of them sued Arney, and the case was settled out of court.)

The government took that building and many others tied to Bank of the Commonwealth. It is being marketed. An Arney-owned building across the street that had been vacant is now a thrift store, and the third building up the street is a tire-repair shop.

Back downtown, Arney's former building at 251 Granby St., which he bought in 2009 with a $2.1 million bank loan and had hoped to use as a go-go-bar, also was auctioned. It is now home to a website-design company.

In the arts district, a Virginia Beach contractor, Balance Builders, bought two more long-vacant former Arney buildings at 763 and 765 Granby St. One is being turned into a theater for the comedy troupe The Pushers, and the other will be a restaurant.

A company affiliated with the Decker family bought 717 Granby St., also formerly owned by Arney, and has begun renovations. Peter Decker III said the company also bought two neighboring buildings and the former Zedd Auctioneers property across the street, which was razed.

"We have gotten some interest, like for a recording studio and other kinds of startups," said Michael Myers, the agent from S.L. Nusbaum Realty Co. marketing those properties.

Movement on the buildings was stalled following the indictment of the executives and loan customers in July 2012.

The U.S. Attorney's Office obtained a restraining order halting sales of the properties while the criminal case was under way. Following the convictions of Woodard, Fields and the others, the government determined that most of the Norfolk properties had little equity from which to recover money for the Federal Deposit Insurance Corp. and other victims. (The FDIC has estimated that it lost more than $300 million because of the bank's collapse.)

The properties had millions in loans outstanding. Southern Bank, which took over Bank of the Commonwealth operations, sought to recover what it could from the problem loans by auctioning the properties.

Gadams, who had already obtained the Wainwright Building on York Street downtown, formerly owned by Menden and Hranowskyj, was front and center come auction time. He obtained the former Madison Hotel on Granby and is completing renovations there, and he bought the former Franklin Condominiums, now called 220 West, at Duke Street and Brambleton Avenue.

"This will allow those buildings, which weren't really being used for anything, to be put to the highest and best use," Gadams said. "It's getting quite an incredible buzz now," he said of downtown.

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Competition for the former bank buildings was tough in some cases.

Michael Glenn, president of Luna Development Services, was outbid on another building before he obtained the vacant and decrepit warehouse at 1001 Monticello Ave., just off Granby. He bought it at auction in September for about $225,000. Just a few years ago, it was worth more than $800,000.

The building also had been used as a pawn by the bank's executives.

In 2008, Woodard approved a loan for $899,000 to Menden and Hranowskyj to buy the bank-owned building and get it off the bank's books. The price was about $80,000 more than the property's assessed value.

That triangle-shaped building, dating to 1910, once housed the first auto dealership in Virginia but had been left to crumble after Menden and Hranowskyj bought it. Weeds and moss were growing from cracks in the concrete facade, windows had been smashed, the roof leaked, and it had become home to hundreds of pigeons.

That's how Glenn found it.

"We got rid of maybe 15 dumpsters full of stuff," he said during a recent tour.

Glenn is sinking an additional $2 million into the property to build Fort Tar Lofts -- 13 second-story apartments with indoor parking on the ground floor.

He said he has a waiting list for tenants.

Tim McGlone, 757-446-2343, tim.mcglone@pilotonline.com

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(c)2014 The Virginian-Pilot (Norfolk, Va.)

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Source: Virginian-Pilot (Norfolk, VA)


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