From http://www.connectionnewspapers.com/article.asp?article=81421&paper=70&cat=116

Don't look now, but a downtown condo project is in financial trouble.

On Sunday, BankEast published a foreclosure notice in connection with a planned Commerce Lofts project on Gay Street.

Developer William Cole Smith said he's working to refinance the project and everything will be straightened out, but you can bet downtown boosters will be watching closely to see whether the trouble is merely a speed bump or the first sign of an overheated market in the city center.

Smith, a Doyle High School and East Tennessee State University graduate who's now based in California, said he had a 12-month loan that would have been refinanced, but his contractor missed the deadlines for completing its work.

"I've got three weeks to refinance," he said. "We've got several banks in New York committed to doing it. It's just a very tight time frame."

Smith said he planned all along to refinance the project and obtain additional funding to complete the condo units after renovating the building itself.

The process hit a snag because his general contractor, Buckhead Construction Co., failed to complete its tasks, Smith said. He has held back a portion of his payments to the contractor until it finishes the job.

"The group that did the construction was six months late," he said. "They were supposed to have been finished in October. And we were supposed to have a certificate of completion in October. Then you go to the bank, then you sell the locations, then everything stays in gear. Buckhead, our general contractor, did not accomplish what they were supposed to do."

Buckhead President Edward Nicholson declined to answer questions about the Commerce project, but in a prepared statement said his company has fulfilled its contracts and would like to finish the project.

"We worked with Cole so that he could restructure his deals and could pay us," the statement said. "Unfortunately, we have found it necessary in the last week or so to file a lien against this property. We regret having to take this action and still believe in the Commerce Building."

A substitute trustee's sale is scheduled for May 29, although Smith appeared confident that he will obtain the financing he needs. Perhaps the bigger question is whether the hiccup signals anything about the broader condominium market.

Last week, this space reported that residential building permits jumped sharply in Knox County in the first quarter, but a pair of sharp-eyed readers subsequently pointed out a distinction in the data. According to the figures from research firm The Market Edge, "attached housing" permits - i.e., condos - grew by 246 percent, while individual home permits dropped by 16 percent.

Not all of those condos are downtown, but it's certainly true that the downtown supply has expanded rapidly in the last couple of years, so it will be interesting to see if demand keeps up.

For his part, Smith said the condo market hasn't softened and he could easily sell all of the Commerce units but has decided to go in a different direction.

He gave few details but said that the building is "going to be a different type of project."