Projo Biz Blog

By Paul Edward Parker
Journal Staff Writer

PROVIDENCE, R.I. - The bank bought back a prominent downtown building when it was sold at a foreclosure auction Tuesday morning.

Nearly two dozen people gathered on a lawn next to the train station for the auction of Gateway Center -- perhaps known better as the American Express Building -- across from the State House

U.S. Bank, the trustee for holders of securities backed by the mortgage on the building, offered the only bid, for $13 million. Generally at foreclosure auctions, banks bid the amount they are owed on the mortgage.

Downtown landlord and former Providence Mayor Joseph R. Paolino Jr. asked half a dozen questions about the building, but remained silent as the auctioneer solicited raises on the bank's opening bid.

Gateway Center has been vacant since last fall when Fidelity Investments finished moving its workers from Providence into offices on its Smithfield campus.

The Providence market has a glut of Class A office space -- the category in which Gateway Center falls -- making it hard to attract tenants. Additionally, the 135,110-square-foot building is configured for a single large tenant.

In a somewhat complicated financial arrangement, Capital Properties owns the land on which Gateway Center was built. Since 2006, RI Gateway Properties, a Delaware company with headquarters in Southport, Conn., has owned the building and leased the land from Capital Properties. When RI Gateway Properties acquired the lease, it borrowed $18.8 million from Wachovia Bank and secured the loan with a mortgage on the property rights it owned under the lease, according to Providence land records.

The foreclosure auction was based on RI Gateway Properties' lease, not Capital Properties' ownership of the land. Legally, Capital Properties is not a party to the foreclosure proceeding.

For nearly two years ending in 2006, the Rhode Island state pension system owned the lease on the building after the prior owner defaulted on its mortgage, which the pension system held. After becoming embroiled in U.S. Bankruptcy Court proceedings, the pension system sold the lease to RI Gateway Properties.

The building was built in 1989, financed by $23 million in bonds issued by the state. The pension system bought the bonds and negotiated a new mortgage with the building's developer, Gateway Eight, of Boston, in 1999.

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