Coni S. Rathbone’s business card may identify her as an attorney, but she could easily add other titles, including developer, community and industry contributor and mentor.

She entered the legal field in 1988 and spent 20 years working at a large law firm before starting a real estate and development firm with fellow attorney Jim Zupancic.

During the past nine years, a significant portion of her legal work has focused on helping tenant-in-common groups save their properties that were threatened as a result of a bad economic climate. From avoiding foreclosure and selling properties to loan refinancing and negotiating new property managers, Rathbone has represented more than 3,000 owners of TIC properties.

Her experience in the world of real estate also led to her involvement as a member of the development team behind the Stafford Hills Club. Along with the jobs generated during construction of the $19 million project, the club created 80 permanent positions in the Tualatin area.

Rathbone makes herself available as a mentor for young women lawyers. She also willingly shares her real estate legal knowledge with commercial brokers and regularly gives presentations free of charge to real estate groups around Oregon.

As a public member of the Oregon Real Estate Board, a position she was selected for by Gov. John Kitzhaber, she works to protect the state’s consumers while helping build a healthy professional environment.

In addition to being named for several consecutive years as a “Super Lawyer,” she recently was identified as a Woman of Influence by the Portland Business Journal.

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Imagine being a tenant-in-common – or TIC – owner and a consultant promises to “save your property.” Before you know it, that consultant owns 90 percent of your property.

So what just happened? You’ve been hit by one of the predators flooding the TIC industry.

These predatory companies enter the picture like wolves stalking their prey, pr with the promise of turning around what is usually a distressed property. However, underneath the wolf’s feigned promises of improved management, lies a sinister motive – the desire to acquire the property owned by TIC owners for pennies on the dollar.

Lacking a watchful shepherd, the trusting and inattentive owners sit idly by as the wolf drains reserve accounts and makes unnecessary and predatory loans. Having consumed all the property’s resources, the wolf then finishes off its prey by proposing a plan that allows it to acquire part or all of the property’s equity or even the property itself.

Changing times

Over the last six years, many TIC owners have been struggling to hold on to their properties. They have funded capital calls, they have changed asset managers, and they have held their breath for an improving economy. When TIC sponsors created the investment programs, they would regularly acquire the property and resell it to the TIC owners only a few days or weeks later for $1 million to $10 million more. Even in a thriving market, it is difficult to justify such an increase in such a short period, and it is nearly impossible for a property to recover from being buried in debt from day one.

Although the economy is now improving, many of these TIC owners remain in the same circumstances, with property values less than, or equal to, the balance of their loans, and with loan terms that are likely maturing on or before 2017. Predatory asset managers and consultants have entered the scene with business plans focused on owning these properties and squeezing out the owners entirely.

Many of the predators are the same companies that originally syndicated the properties to the TIC owners.

As certain sponsors and managers have struggled, many have “sold” their management portfolios to new asset managers. This often happens without approval of the TIC owners or lenders. So, one day, a TIC owner receives a letter from an unknown company saying, “I am your new asset manager,” even though the Revenue Procedure requires that all TIC owners unanimously approve the engagement of a new asset manager.

Additionally, loan documents universally require lender approval for a change in asset management. These struggling sponsors, who are seeking to capitalize on their own demise, justify their actions through loopholes they drafted into their own documents. The failing sponsors will engage these new predatory asset managers as “sub-asset managers,” which does not require lender or owner approval.

Alternatively, they will simply sell the company that is the asset manager to the new predatory third party. The TIC owners are then forced to work with a new manager that they never met, never approved and do not want. Nevertheless, because the owners are fatigued and not organized as a group, they fail to object and continue to hope for the best. If the TIC owners suspect that their sponsor or asset manager may be insolvent, it is critical for them to get ahead of the game, get professionals involved, and take action.

Upon assuming management, the new asset manager will tout its qualifications and provide assurances and rhetoric about how much better this new asset manager is going to be for the TIC owners. Nevertheless, the business plan of the predator is as follows:

• Take over a portfolio.

• Allow properties to fail through negligence, mismanagement and general lack of attention.

• Drain reserve accounts, make predatory loans, and sometimes even steal operating cash.

• Need for new capital arises, sometimes as a result of predator’s actions or inactions.

• Provide new capital in exchange for a huge percentage of the property.

The manager simply blames the economy, the market, or any other number of factors for the property’s decline. Not wanting to lose the property to foreclosure, and seeing no other alternative, the owners consent to the predator’s plan.

Credibility counts

Of course, the majority of asset managers and consultants in the TIC industry are honorable, credible and have the best interest of the owners at heart. Unfortunately, there are also many who do not. Here are a few tips to identify a credible manager or consultant versus a predator:

• Don’t engage anyone that attempts to obtain your engagement through fear.

• View skeptically consultants agreeing to waive fees in exchange for a large percentage of your property.

• A credible asset manager will welcome questions and will not be defensive in answering.

• Be suspicious of any asset manager that incorporates in their agreements the right of the asset manager to purchase interests rather than the other TIC owners.

• Seek an asset manager that will share all financial information on the property and also identities of the other TIC owners.

• Run from any asset manager who bullies owners on calls to accomplish their agenda.

• Be very conscious of double talk and vague answers to specific questions.

Time to act

What can the TIC owner do to protect an interest? First, recognize that a TIC structure under the Revenue Procedure should not create a passive investment. All TIC owners must approve all asset managers and all TIC owners must approve all leases. While TIC owners may have purchased their TIC interest hoping to be a passive investor, they must now become an active and involved owner. The TIC owner cannot rely on anyone else to look out for its best interest. TIC owners are entitled to answers, so ask questions. Don’t tolerate being put off or ignored.

TIC owners need to read all of the information that is delivered by the asset manager. The financial statement should show what is going on with the property. Watch the reserve columns. If the property has substantial reserves one month and none the next month, there is a reason. If the owners don’t clearly understand the reason, it may be that the asset manager has inappropriately utilized those funds. If the owners have any suspicions, investigate further. A good and honorable asset manager will not shy away from questions about the property or the property’s performance. They will welcome active participation by the owners.

Owners should also coordinate among themselves. Ask the asset managers for contact information for fellow owners. Owners should coordinate on a regular basis, without the asset manager involved. Many owners have continuing relationships with the broker dealer and registered representatives that sold them the property. Through their knowledge and contacts in the industry and their history with the property, these brokers can be very valuable assets to the TIC owners. Ask for this help and involvement, particularly with respect to keeping apprised of what is going on in the industry.

Having the owners working together for the benefit of all is of critical importance in obtaining a good outcome.

Finally, if you have reason to suspect something is awry, seek professional guidance. There are a handful of good TIC owner group lawyers and consultants across the country who seek to aid TIC groups in working through challenging situations and defend against predators. The information communicated in this article is not intended to terrorize TIC owners or to imply that all is lost. However, all TIC owners should decide that it is time to become an active owner. Don’t let a TIC owners’ desire to own passively allow a TIC predator to devour the property.

Coni Rathbone is a real estate and business transactions lawyer in the Portland metro area who specializes in representing tenant-in-common (TIC) owner groups all over the country. Contact her at 503-968-8200 or email her at coni@zupgroup.com.

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Construction of an $18.5 million fitness club is finally under way in Tualatin, after financing hurdles were cleared and neighboring residents’ concerns were addressed.

The Stafford Hills club will cater to well-heeled locals, and offer seven professional-grade tennis courts, a solar-heated swimming pool and state-of-the-art fitness equipment. Attorney and developer Jim Zupancic is hailing the 90,000-square-foot, two-building facility as a first-class center long missing in the metro area.

“People are yearning for a real five-star experience, and that’s what we’ll be providing for them,” said Zupancic, whose Lake Oswego firm, Zupancic Rathbone Law Group, is leading the project on the five developable acres of a 16-acre parcel near Legacy Meridian Park Medical Center.

Early plans for the site, on Southwest Nyberg Lane, called for building 130 condo/apartment units. But that changed in late 2008, when the developers noticed a shift in the housing market.

“We actually developed this concept, which we think is far superior to anything we could’ve come up with on the housing side,” Zupancic said. “There hasn’t been a new tennis facility built in the Portland area in the last 35 years, and there is really nothing in the area that will be comparable, except perhaps the Multnomah Athletic Club.”

But some residents of the surrounding Fox Hill neighborhood contended that the project would bring too much traffic to Nyberg Lane, decrease property values, and lessen privacy of housing nearby.

Several residents in 2010 appealed to Tualatin City Council after the city’s Architectural Review Board approved Myhre Group Architects‘ design of the club. The council upheld the board’s approval; however, several compromises were made in response to residents’ concerns.

“We made some pretty slight changes,” Myhre Group principal Ray Yancey said. “Parking was a big concern they had, so we added some parking spaces to the west side of the site, away from the neighborhood.”

City Council also required the design to include translucent glass in the windows facing houses to the east.

Many people in the area have supported the project since plans became public. Approximately 400 people preregistered for club memberships

online, according to Stafford Hills’ director of project management, Maggie Creps.

“The initial rush to sign up was back in February 2010, and most of them stuck with us,” she said.

The facility was initially slated to open in mid-2010, but now the grand opening is scheduled for November.

“It’s exciting, considering how long that initial phase took to get to this point,” Creps said.

The seven indoor tennis courts are surrounded by large, roll-up doors so that fresh air can flow in on nice days. And because the club is surrounded by wetlands, wooded areas and a park, the design also incorporates warm colors, stonework and trellis features.

A Leadership in Energy and Environmental Design silver rating is being targeted for the project, which will include 50,000 watts of rooftop photovoltaic panels, two electric vehicle charging stations and wetland restoration.

Tualatin-based Todd Construction is the project’s general contractor. Crews this week are pouring footings and foundations, and working on a large retaining wall on the south side.

“We have visited projects all the way from Melbourne, Australia to New England and incorporated what we think are some of the best practices throughout the world,” Zupancic said. “Stafford Hills will bring something to this area that has never before been introduced in the Pacific Northwest.”

The developers are still looking for restaurants to sign on. Therapeutic Associates has signed a lease and will provide physical therapy services at the club. Players Racquet Shop, a Portland-based tennis gear retailer, has signed a letter of intent, according to Zupancic, who will also serve as the chairman of the club once it opens.

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Developer Jim Zupancic pictures the Stafford Hills Racquet and Fitness Club as a family-oriented sports center with 13 tennis courts nestled against mitigated woodlands in Tualatin.

But before ground is broken on the project this summer, there could be chaos, with subcontractors scrambling and fighting to help build it.

“It’ll be a blood fest,” said Stan Robinson, a roofer in Tualatin who does maintenance work. “Everybody’s starving. That’s the nature of what’s going on right now.”

Robinson doesn’t plan to bid for the project. He may be in the minority.

General contractors in the Portland-metro area say that in the past six to 12 months, as their sector has worsened, area projects have been flooded with bid applications and interest from general contractors, subcontractors, suppliers and others connected to the building industry.

Bids are even coming from companies as far as 500 miles away, said John Bradley, CEO of R&H Construction in Portland.

“It’s nuts,” he said.

The rise in bids has helped produce, among other things, lower construction costs.

Bruce Reid, a senior project manager at Turner Construction in Portland, said his firm completed a $16 million solar panel assembly factory in Hillsboro last November. On average, he said, 12 subcontractors applied for each trade. In the past, six or seven would have bid, Reid said.

The tight competition brought in lower bids, slashing the factory’s cost by 8 percent, he said.

“It’s a very slow market, obviously, so everybody’s looking at the same projects right now,” he said.

Bradley said some bids are alarmingly low. Construction costs for his company peaked in August 2008, and have fallen about 15 percent since, he said. Firms submitting prices below that level, however, indicate “desperation trouble.”

“It doesn’t mean there is a problem, but it’s clearly suspect,” he said.

Those bidders, Bradley said, may be challenged to build quality projects or finish on time. To prevent such problems, R&H “triple-checks stuff,” like the company’s credit and manpower.

Meanwhile, Stafford Hills Racquet and Fitness Club will be built in a city that, like many other parts of the country, has seen little construction activity lately.

Last year, six permits were issued for new construction in Tualatin – two single-family homes and four commercial buildings, said Sue Lamb, the city’s permit technician.

No permits for new construction had been issued this year as of Wednesday, and Lamb said the most recent permit for a commercial project was issued last September, for a parking garage.

According to Stafford Hills’ developer, the Zupancic Group, the club will have seven indoor tennis courts, four outdoor courts and two practice courts “with many high-tech amenities.”

Zupancic Group said Tuesday ground would be broken on the 90,000-square-foot club this year, and work would finish by mid-2011.

Jim Zupancic, the company’s president, said contractors have been contacting his office for 18 months, since the project entered the public planning process. He said contracts would start going out for bid in the next 90 days.

There might also be a “2- or 3-inch stack” of bids, with three or four people needed to process the applications instead of the usual lone person, said Ken Dixon, vice president of Todd Construction, the project’s general contractor.

“I’m sure it’ll be huge … definitely,” he said of the expected volume.

Zupancic said companies that contacted his office 18 months ago were making “initial contacts,” which he said is normal even during good economic times.

But he also said firms are interested because their work volume has fallen.

Bradley said he has never seen the sector struggle like this. In the past year, when a project had three or four general contractors competing for the job, “we are absolutely flooded with subcontract quotes,” he said.

“Our industry is shrinking,” he said. “I’m 54 years old. This is my fourth construction recession. The pendulum will swing and things will get better. It’s just, when.”

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Real estate counsel and development firm Zupancic Group said today it will break ground on a racquet and fitness club in Tualatin by the middle of this year.

The 90,000-square foot Stafford Hills Racquet and Fitness Club will be located near the intersection of Interstates 5 and 205, on a 15.6-acre parcel just south of Lake Oswego.

Company President Jim Zupancic said the club would be completed by mid-2011. He declined to say how much it would cost to build.

The project’s general contractor is Todd Construction of Tigard. Zupancic, a former Republican nominee for the U.S. House of Representatives, said contractors have been contacting his office for months, asking “when we’re gonna get started on this.”

He said contracts are expected to start going out for bid in the next 90 days.

“And I don’t want people calling me,” he said. “They should call Todd.”

According to Lake Oswego-based Zupancic Group, the club will have seven indoor tennis courts, four outdoor courts and two practice courts “with many high tech amenities.” The club will also have fitness programs and aquatics.

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