Pension fund takes control of Philadelphia's 10 Rittenhouse Square condo building

A pension fund representing thousands of workers, mostly in the construction trades, has taken control of the luxury 10 Rittenhouse Square project in a dispute over the fund's $57 million stake in the building.

The 33-story Robert A.M. Stern signature building at 130 S. 18th St. - with 135 condominiums priced from $600,000 to $15 million, plus retail and restaurant space - opened in November, more than two years behind schedule, because of litigation over preservation and zoning issues.

That delay, coupled with a deepening recession, resulted in sales below what are considered necessary to begin repaying more than $300 million in debt owed to the project's senior lender, Istar Financial Group of New York, and the pension fund, the Delaware Valley Real Estate Investment Fund, which manages the retirement nest eggs of 47,200 workers in the region.

According to data from city Board of Revision of Taxes and other sources, only about three dozen units have sold or gone to settlement.

Because of those low numbers and concerns about Istar's intentions for the building, the pension fund filed suit Friday in Common Pleas Court, seeking "to save Center City's premier residential condominium development from the depredations of a troubled hedge fund and rogue lender."

In 2006, the pension fund provided 10 Rittenhouse's developer, ARCWheeler L.L.C., with two loans to launch the project - the first for $25 million, the second for $5 million. With late charges and accrued interest, the pension fund is now owed $57 million.

In 2007, Istar lent $216.5 million to ARCWheeler to build the high-rise.

With its pair of loans, the pension fund provided "mezzanine" financing, similar to a second mortgage in residential real estate, with the debt secured by the borrowers' equity in the property.

In such arrangements, the senior lender, in this case Istar, typically is paid first, with the pension fund paid next. But a provision in the mezzanine agreement allows the pension fund to assume ownership if it believes its investment is in jeopardy.

With the exercise of that provision, Rittenhouse Pension Investors L.L.C., a wholly owned subsidiary of the pension fund, has assumed management of the luxury high-rise, said managing partner John M. Decker, of Dequity Investment Group.