A Tempe apartment complex known for luxury - and the highest rents in the Valley - has filed for bankruptcy protection.
Grigio Tempe Town Lake opened with some units priced at $2,000 to $6,000 a month in 2007, and already high apartment vacancy rates have only climbed since that time.
Now, Phoenix-based Gray Development Group filed for Chapter 11 reorganization protection on the entity that operates the complex, Mondrian TTL, LLC.
The bankruptcy stems from a loan on the construction costs, said Brian Kearney, Gray's CEO.
"We took this action because we have differences with our lenders," Kearney said.
Grigio is 90 percent leased and those tenants shouldn't be affected by Monday's court filing, he said. The company plans to reorganize and exit bankruptcy as quickly as possible. Grigio is the only Gray project seeking bankruptcy protection.
The development includes 523 units and opened with some rents as low as $900 a month.
Grigio is a victim of a real estate crash that hit luxury apartments especially hard, said real estate analyst Bob Kammrath.
Pricey apartments are a tough sell when renters can choose from countless houses that have been foreclosed on and put up for rent, Kammrath said. Grigio's ritziest units include six presidential suites that feature two floors and 2,583 square feet.
"While 2,500 square feet is a big apartment, 2,500 square feet is not a big house," Kammrath said. "There are a lot of 2,500 square foot homes that you can rent for less than $2,000."
Grigio's steep rents afford tenants views of Tempe Town Lake from its location at the southeast corner of Rural Road and the Loop 202. Amenities include housekeeping service, fitness classes, blue pearl granite counter tops and bamboo floors.
High-end places like Grigio will struggle until the housing market recovers and the number of rental homes dwindles, Kammrath said.
He expects more bankruptcies, which will lead to lower rents as owners restructure their debt and can afford to take in less money. But that will ratchet up pressure on other developments.
"You get this ripple effect where more properties go into foreclosure because they can't compete," Kammrath said.
Apartment vacancy rates were 12.4 percent when Grigio was relatively new in early 2008. Then, Kammrath told the Tribune Grigio couldn't have opened at a worse time. Now, vacancy rates are about 14 percent.
As dismal as the short-term prospects are for those who invested in luxury apartments, Kammrath said he can't fault those who conceived this kind of development in the mid-2000s.
"Everything was zipping along," Kammrath said. "There weren't a lot of people predicting a big housing bubble bursting."