Only the Towers Remain Standing: Mosaic and Friends Break the Bank

With its most recent achievements, the Mosaic earns its place in Houston’s spec-development record books: Last month the 29-story condo tower near Hermann Park — wedged between Almeda and 288 — scored the loan-default trifecta, having notched a bankruptcy, mass foreclosures, and an attendant bank failure to its credit all within a single calendar year.

Chicago’s Corus Bankshares, which held a $71 million loan for the Mosaic, foreclosed on all 271 unsold units (out of 394 total in the building) in September, just days before the bank itself was seized by the FDIC. A few weeks later, the federal agency sold 40 percent of the bank’s real estate loans to a team of private-equity firms calling itself Northwest Investments and led by Starwood Capital Group — for 60 cents on the dollar.

Any further fun at the Mosaic will be courtesy of the FDIC, reports Nancy Sarnoff:


Under the terms of the broader deal, the FDIC will own a 60 percent equity interest in the Corus portfolio, held in a company called Corus Construction Ventures, and provide zero percent financing to the Starwood and the other investors for 50 percent of the purchase price, according to the Starwood investor group.

The FDIC will also provide up to $1 billion for working capital and to fund project completions. Starwood will oversee day-to-day management of the portfolio.

Can the adjacent Montage, the Mosaic’s gone-rental twin, compete in this game of financial derring-do? We’re still waiting for the judges’ verdict. The southern tower had its own separate $71 million loan from Corus, which has not been foreclosed on. Is the Montage part of the Northwest package? It’s not clear yet: The FDIC hasn’t released the complete list of properties covered by the transaction.

Photo: Montage of Houston

42 Comment

  • What fun!

    This is only the beginning of the commercial real estate flop that is coming.

    You real estate experts out there can add a lot more than I can!

  • Well at least when the commercial foreclosures start no one will notice the residential foreclosures as much.

    This was an ill-conceived project and without comment it went against one of the basic maxims of real estate.

    Location, location, location.

  • I like the project itself. I just wished it was better placed between downtown and the med center. That was cornerstone of their selling points. Being near the light rail line will make the point more clear.

  • The location is EXCELLENT. Hermann Park is your lawn. Alameda has easy access to midtown, downtown, the med center, the museum district and most major universities in mere minutes and there’s never any traffic. People in Houston are just slow to new things (high rises and “out of the way” locations).

  • Being near the light rail line will make the point more clear.

    Unless there’s another rail line we don’t know about, they are nowhere NEAR the rail line.

  • Matt, read my post again.

    I received all the marketing blitz for this project.

    A big selling point besides Herman Park being next to it was that it was located between downtown and the med center. If they would have built it near the light rail line, it would have actually made their point.

  • kjb, Mosaic is an extraordinary case as far as commercial foreclosures go. It was destined for this fate. Even in the heady days of 2005-2007 when straight-line market forecasting was the norm and everybody seemed to think that 2009 would be better and 2010 better still, it took the developer years and many failed attempts before he finally line up financing.
    When it comes right down to it, there has never been so many condos in a single tower built anywhere in Houston (not even in the 70’s or early 80’s)…and if that’s what a developer wanted to do, they should’ve done it on Post Oak Blvd., not Almeda Road.
    There were other issues that make Mosaic among the least well-conceived projects I’ve ever witnessed actually get built, but the number of units and the location are certainly chief among them.

  • So Pro Planning/Pro Growth is a corrupting oxymoron?
    But, how does the Anti Planning/Pro Growth love-child MOSAIC help Houston?
    Seems to me, an intact neighborhood of homeowner/renters/taxpayers is better than an empty tower such as, um, ASHBY may become?
    Because wedding Planning to Growth seems troublesome doesn’t make it impossible. It’s honorable.

  • I live near here and looked into the tower and followed the project. The location is GREAT-Alameda can get you downtown in no time, or if you need the Med Center, that’s a snap, too. I looked into the towers, but for some reason I never thought a monster this size was appropriate for the area.

    In my opinion, the problem was during their construction and pre-selling phase, (which was also during the boom time) the prices were set SO HIGH! Some of these units on were literally near the 1 million mark. I think people were bypassing and looking at other options (free-standing). At the original prices, it allowed a nice inventory of homes, even inside the loop. The inventory didn’t move, the market started to show a few quiet rumbles, so prices slowly started to show some adjusting.

    Then the bottom fell out and I think they got caught holding the bag. By the time the prices became more realistic, folks weren’t buying, and if they were, it wasn’t with a property that already had bad press, and low occupancy. Who wants to move into a sinking ship, even if the price is right?

    Summary: This monster was priced to high!

  • I think the pricing was more the it’s downfall than anything, I think they were asking exorbitant amounts for these units. I agree that the location overlooking Hermann parking is desirable, but backing up to third ward is not.

  • movocelot,

    So are we trust to planning mastermind that came out of college to tell us plebiscites what should be built where?

    What’s wrong with a developer risking it and building something like this? It was a bad bet, but our city is destroyed. Now that it’s foreclosed on, it’s likely that it’ll get unloaded for cheap and another management group can rent it out as apartments (hopefully at a reasonable price).

    People succeed and fail. The government shouldn’t be the one to decide that.

  • ^ kjb, well…
    if a neighborhood is torn up, if someone’s yard ends up in the shadow of a behemoth, if city/county/federal tax-breaks are squandered, if investors are ripped off or politicians were bought… then it was a damaging thing and we should do better!

  • That was cornerstone of their selling points. Being near the light rail line will make the point more clear.

    Being near implies it is. No problem. That probably would have been one of the selling points that might have saved it. Had it been on Main Street or San Jacinto or Fannin. That will happen. When the market improves. Almeda, however, is just not what you call “prime real estate.”

  • movocelot,

    Well, the family of 15 illegal immigrants that moved in next to a suburban family is unfortunate because they ruined the atmosphere of the neighborhood, but we already have rules to stop that. I guess the government will do better and enforce its rule next time!

  • Why hasn’t a developer built something like this in Midtown along the rail?

    I know the land is a little pricier, but it would be an awesome location near restaurants, bars, etc. along with easy access to Downtown, Herman Park, and the Med Center. You would have incredible views all around, and the building would fit into the neighborhood.

  • ^Brian, the Mosaic group didn’t put the project in the right place because it was acting in a vacuum – completely full of itself – and never had to answer to, or consult with, Houston.
    ^ kjb, if you’re referring to specific situation, excuse me I’m not aware… But yes! when someone is destroying one’s Houston neighborhood, there should be protections in place: Community restrictions, City zoning, Dept. of Health standards, whatever applies. THIS is positive, proactive development: Rules for living together in density.
    In earlier human history a monarch controlled everyone; but we have evolved to MANAGE ourselves. Let’s do that, already.

  • Why hasn’t a developer built something like this in Midtown along the rail?
    Because this is Houston doggonit, where we put suburban style strip malls and open surface parking lots in the downtown areas, and bring high rises to SFR neighborhoods. Planning? We don’t need no stinkin’ planning.

  • movocelot,
    Your issues are confused. The financial failure of Mosaic is not related to zoning or neighborhood protection. Mosaic represents a massive mixed-use project that will (eventually) fill up and further the civic goals of increasing population density and adding positively to the streetscape. In the mean time, the FDIC and out-of-state investors are paying the property tax bill on units that aren’t occupied by people that would stress our infrastructure. Where’s the downside in that?
    If the alternative were a vacant lot, Mosaic is far preferable from a civic perspective.
    I’ve seen the question raised numerous times as to why it couldn’t have been built along the light rail line. The answer is that this developer had made the land play many years ago and had an unusually low basis on the land. His contribution of land to the deal was the only redeeming aspect of his financing proposal. The developer could never have made the deal work on any other parcel.

  • Right, MOSAIC did not stomp-on or ruin an existing neighborhood.
    However, it still isn’t RIGHT or ideal that they took resources (captive until it sees success) which could benefit other places/people/things.
    Planning could/should preclude this.

  • Movocelot,
    The (out-of-state) developers no doubt paid in several hundred thousands of dollars for permitting and impact fees to the City of Houston in order to get Mosaic approved and built. And whether occupied or not, Mosaic represents a tremendous addition to the tax base.
    What resources do you believe were taken from us or redirected to Mosaic that could’ve been directed elsewhere?

  • One of the main problems with this place was that it was marketed (at least from what I saw) as being for young, fashionable professionals; however, the price range was well beyond what most in the demographic could afford. Mosaic and its PR firm were more concerned with having pool parties and fabulous events at the place versus getting in people who had the money (or could qualify for the financing) to afford one of the units.

  • You are correct, Christina. The other problem with younger demographics as far as condos are concerned is that they’re more transient. The rent vs. own calculus isn’t the least bit compelling unless someone intends to be there for **at least** four years. And you can FORGET about cash-flowing at Mosaic if you had to move and wanted to lease out your unit.

  • Wait, is this the one that was originally going to be two condo towers, then halfway through construction of the second tower, it turned into rentals and they transferred the few people who had bought in tower 2 over into tower 1? So does this mean that both towers are now rentals (with a few unlucky buyers who “snapped up” those million dollar condos early on)?

  • Don’t know too much about the ins and outs of the financing, but I do think the area is actually a bit of an undiscovered gem of Houston…

    My ex actually lives in a townhome nearby – and at one time I actually thought about trying to buy one of he condos in the Mosaic Tower. Bit pricey for me, but it was nice…

    At night (and for a commute to DT I’m told) – its literally like 3 minutes to downtown…

    Yes, its “next” to the third ward, but that’s over the Highway and quite far away really. Come on, how many places in Houston do you walk out and there is a beautiful Park??? ( I may be biased as I play golf and the fact that its a stroll to the driving range is kind of cool).

    800 units is a lot, but I’m sure they will sell eventually…

  • Oh yes, the units will sell or rent, eventually. I believe there’s truth in “if you built it, they will come…”
    though Mosaic may ultimately be subsidized, elderly managed care!
    This just wasn’t a smart, efficient project. The coming lean years will really underscore the need for Smart & Efficient.

  • 788 units to be exact which was in itself rather bold. 394 units in each tower. This ain’t Miami Beach although these two towers might as well have been. They will be firesaled or flipped. We need more affordable housing units. I bet Section 8 could fill both towers up real quick.

    Almeda is not the place to build luxury anything. Some will say that is racist. It is just reality. Between Almeda and the freeway also was not the place to build luxury anything. That is just reality.

  • most missed that our economy was going to melt down starting in 2008. people have to have good paying jobs afford nice things. you see recently completed high end apartment and condo developments…just drive by at night and take note of how few lights are on inside.

  • Matt Mystery, actually the developer behind Mosaic had previously developed multiple luxury apartment complexes immediately south of Brays Bayou and in between Almeda Rd. and 288. So no, this wasn’t necessarily unprecedented. It just went WAY too far is all.

  • Luxury apartment complexes south of the bayou is one thing. North of the bayou is another. These were condos. Not apartments. Not originally. The one thing we can agree on is the “overly optimistic” 788 units in two buildings. Even in a good economy.

    More than likely they will become apartments. And probably will lease. Maybe. When the economy gets better.

    The land was cheap. The developer was greedy. And thought more is better.

  • most missed that our economy was going to melt down starting in 2008

    Quite a few are still missing it. The rich are doing better. But they also are not going to invest in overvalued property. Be it on River Oaks Boulevard or Almeda.

  • Of course they might try an auction but then the realtors might not like it:

    If you read it carefully, the value in Boston’s Back Bay, at least in the condo market, was just devalued by 25%. And that is with regard to the 2008 value. It may be 50% with regard to the 2007 value.

  • Matt Mystery, you claimed earlier that “Between Almeda and the freeway also was not the place to build luxury anything.” Now you’ve changed the rules and exempted apartments. So I’m going to point out that a multi-level Pro Guard self storage facility is under construction between Almeda and 288 just to the north of that site. Compared with some other self storage facilities I could think of, it would qualify as a luxury product. Are you going to change the rules on me, again?
    Also, to say that the rich can still afford it and are still buying skims over some important issues. To the extent that net wealth is increasing again, it is primarily because people who are still earning good money are more cautious in spending it and so are saving or investing it instead. A residence is a form of consumption, not an investment, so as an alternative to saving or investing, a luxury condo gets marginalized. The other factor at play is that many fewer households pass for qualified buyers these days because loans have become so difficult to get. To the extent that wealth is measured by the purchases that a household can afford to finance, many fewer people can afford to finance the purchase of a luxury condo and so they are less well off; the pool of qualified prospective buyers has been decimated.

  • Condo financing for regular folks is just about non-existent. FHA requires a rather extensive approval process for a project to be eligible for FHA mortgages. There is only a handful of condos in Houston which are FHA approved. As I recall one sticking point for approval is the financial condition of the Condo HOA. Very few condo HOA’s in our town are properly funded for future contingencies, which would prevent uncomfortable assessments on the homeowners.

    I have a $.40/sqft rule of thumb which seems to hold some validity. Above 40 cents, the HOA should be OK. Below 40 cents, there is reason for solid due diligence on behalf of the buyer.

    As far as the Mosaic is concerned, I do not think that the FDIC will be generously funding the Condo HOA going forward.

    Maybe the FDIC can get some bureaucratic relief on the FHA problem from HUD, kind of like the way the FBI and the CIA or perhaps how Treasury and the SEC communicate.

  • Told you so. And as the rest of the new high rises slump like a row of dominoes, be prepared for a long long recovery period.

  • Now you’ve changed the rules and exempted apartments.

    There’s a big difference between renting for convenience to downtown and the Medical Center for a year or two and buying as a long-term investment. Sorry you don’t realize the difference. There is this tendency to “partially” revitalize a neighborhood and then demand the highest prices possible. Midtown and the Binz are prime examples. And Almeda. The Binz seems to have been undergoing “revitalization” for the past twenty years. The developers are not real big on long-term investment. Just short-term profit. And when one area begins to falter, they move on down the road. In the case of Almeda Road, it was the wrong road. Sorry.

  • There’s one unit listed on HAR right now for $415k and it’s 1184sf. Plus you’ve got a $462 a month maintenance fee. That’s just not within reason. I don’t care how good the view is. Rich people who buy things like this don’t stay rich.

  • TheNiche: actually the developer behind Mosaic had previously developed multiple luxury apartment complexes immediately south of Brays Bayou and in between Almeda Rd. and 288.

    The developer behind this project only brought on the developer of the two projects you mentioned for their construction and budgeting know-how and was not even involved in the second tower. This was purely an out-of-towner play with no Houston experience.

  • Price will cure anything.

  • Price will cure anything.

    I posted something similiar on HAIF before the big economic crash. Even in good times the prices were just stupid. This thing had failure written all over it even before the crash. I’m sure they are very nice inside but the buildings look like Soviet Bloc housing projects with some glass added on. They’re just big boxes with row after row of tiny balconies.

  • i just wish we could get hermann park stables back.

  • I am amazed we have not heard more about this building in the news. The only reason Corus Bank gave a green light to the second tower was because they were told it was over 50% pre-sold. There are many former employees who worked in the sales office that know the bank was misled about the true sales numbers and how many “investors” were buying the units. If the general public wants to know why the pricing was so high it was because the building would be offered to investment clubs first. These clubs would buy blocks of units during pre-sale then we would try to sell the units again to the walk-in public at a higher price. When the market was hot condo projects were able to flip units before the buildings started closing on the properties which would net the individual investor of that larger investment block a small instant profit.

  • From insider of project:
    I am amazed we have not heard more about this building in the news. The only reason Corus Bank gave a green light to the second tower was because they were told it was over 50% pre-sold.

    Sounds like fraud to me. So where’s the indictments?