Eight months after it was filed, a multi-million dollar lawsuit against Raleigh developer Greg Hatem has been settled. A key figure in downtown Raleigh's renaissance, Hatem, along with four others, was charged with defaulting on a $5.8 million loan issued in 2005.
In the months since the suit was filed, Hatem received a city loan for $50,000. Whether decision makers at the City of Raleigh were aware of the lawsuit allegations remains an open question.
Wells Fargo's suit against Hatem and the other named defendants was settled out of court Friday, just days before a hearing in Wake County Superior Court to determine whether the properties would go into receivership. Wells Fargo bank filed the action in February, alleging that Hatem and the other defendants stopped making payments on the loan.
According to court documents, the money was used by Raleigh Bonded Empire, LLC, a Hatem-controlled company, to purchase two properties: 1505 and 1515 Capital Blvd. The filing of the suit called into question the financial health of one of Raleigh's most visible real estate empires.
Prior to the settlement, the bank had pushed the court to appoint a receiver who would take control of the buildings and collect rents, which then could be used to recoup loan payments.
In court documents, Wells Fargo states Hatem's company last submitted payment on the loan in November 2011. The loan went into full default in February, the complaint alleges.
Asked about the allegation, Hatem refutes the bank's charges. "We never missed nor were we ever late on a regularly scheduled payment for the entire term of the note," he says. About the settlement, Hatem now says Wells Fargo has no financial relationship with Raleigh Bonded Empire, but he declines to disclose any additional details. "We are very pleased with the outcome," he adds. Attorneys for Wells Fargo did not return repeated calls seeking comment.
Even though Hatem was a named party in the lawsuit, last May the City of Raleigh backed a $50,000 loan to another of his corporations to help purchase additional kitchen equipment. Owned in part by Hatem, the Raleigh Times Bar was then in the midst of expanding.
Hatem is just one of a handful of beneficiaries of Raleigh's Downtown Loan Pool program. City officials say the program is an incentive for local entrepreneurs to expand or create new businesses in downtown Raleigh. Previous recipients include owners of the Wilmoore Cafe and The Big Easy.
Renovations at the Raleigh Times Bar increased the restaurant's capacity from 125 customers to 216, says a press release announcing the loan.
Minutes from a May 14 meeting of the council's Budget and Economic Development Committee indicate that the loan application was backed by city staff, including City Manager J. Russell Allen. The loan application was approved at a later city council meeting by a vote of 7 to 1.
Asked whether the lawsuit should have factored into the city staff's consideration of the loan application, Allen says, "What's important here is that we get a personal guarantee."
It's not policy to investigate every corporation owned by an applicant, Allen says. Instead, each recipient is investigated to ensure that they have enough collateral to cover the loan.
That's borne out in documents related to the company's loan application. As part of the loan agreement, equipment purchased to help in the expansion of the Raleigh Times was used as collateral, according to documents obtained by the Indy. Hatem also agreed to personally guarantee the loan. Securing a personal guarantee from each beneficiary of the downtown loan program is standard policy, says Allen.
It wasn't the first time Hatem applied for and received funding via the downtown loan program. In September 2011, the City Council approved a $50,000 loan to HL Empire, LLC, to help convert the building at 111 Hargett St. into office space. It's just one of a dozen or so historic properties in downtown Raleigh now owned by Hatem-controlled companies.
As for Hatem, he says that the Capital Boulevard properties remain in the control of Raleigh Bonded Empire, LLC.
Improvements to the building that houses the Raleigh Times continue. "We will also be opening the rooftop at the Times soon," he writes. "Good Times all the Times."
This article appeared in print with the headline "The $5.8 million question."