Project on hold

Work on the renovation of the Cigar Factory, at East Bay and Columbus streets, was halted Wednesday after the developer lost its construction funding and couldn't find another source.

The company redeveloping one of Charleston's most notable buildings is feeling the crunch of the banking crisis.

Construction at the Cigar Factory, the historic brick landmark at Columbus and East Bay streets, has stopped because its owner, The Simpson Organization of Atlanta, lost its construction funding and can't find another source.

The development group, which bought the building in 2007 for about $20 million, is executing a major overhaul of the former cigar and cotton factory, turning its interior into a mix of shops, 66 luxury condominiums and a white-tablecloth restaurant.

Funding for the $75 million project came from Silverton Bank of Atlanta, which agreed to lend the group $37 million.

Federal regulators took over that bank in May and stopped providing funding under the terms of the loan's agreement, said Boyd Simpson, president of The Simpson Organization.

The development group funded the project until Wednesday, when it agreed with general contractor Trident Construction to put the project on hold.

"The project is in every respect viable," Simpson said Friday. "It's on schedule. It's on budget ... But our funds have been cut off without any rational explanation."

Silverton Bank was seized May 1 at an estimated cost of $1.3 billion to the Federal Deposit Insurance Corp. The bank mostly did business with other financial institutions as a so-called correspondent bank.

The bank's real estate loans totalled more than $1 billion, according to a news report in the Atlanta Journal-Constitution. As the recession worsened, a portion of those loans soured and the bank ended 2008 with $192 million in bad loans, a sharp increase from $35 million the year before, the newspaper reported.

Half of The Simpson Organization's construction loan has been paid out. Payments to the Cigar Factory developer stopped in August, prompting it to fund $14 million on its own while trying to negotiate with banking regulators.

Simpson said his group never missed a payment and despite anemic demand for condominiums, he insisted that the project still makes economical sense. Buyers have signed contracts to purchase about 20 percent of the Cigar Factory's units, which range from around $380,000 to $1.6 million.

"We are not, we have not been and are not now in default," he said. "This is purely a discretionary act by the FDIC."

Calls to the agency on Friday were not returned.

Simpson said his company is continuing to seek out other sources of funding while contacting local, state and federal representatives to ask for help in negotiating with the banking regulatory agency.

"We have been seeking alternative financing since August, and it's very difficult to come by in the current economic situation in no small part because the FDIC is putting extreme regulatory pressure on banks not to make real estate construction loans," Simpson said.

Until then, Simpson said crews from Trident Construction will secure the site and protect the progress that's been made on the historic structure, "rather than just throwing up our hands and walking away in some sort of confusion."