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Lenders Become Developers

Mezzanine lender Dominion Capital Management LLC didn't anticipate developing shopping centers when it lent $170 million to developer Premier Properties USA Inc. But that is what Dominion is doing since Premier fell into bankruptcy court last spring.

Dominion, a small lender based in Atlanta, foreclosed in April on Premier's 11 shopping centers, which were in varied stages of development. With them, the lender inherited a pile of problems: anxious first-mortgage holders; millions of dollars in contractors' liens; and one new center where allegedly faulty construction forced retailers to vacate.

"It saddled us with a lot of problems we're still solving from Premier," Dominion principal Ben Easterlin said of the foreclosure. "We are a lender, not a developer."

Dominion's travails with the Premier shopping centers highlight the struggles that many lenders will endure in coming years as the souring economy pushes commercial real-estate projects into default on loans. Many early casualties are, like Premier, troubled companies likely to leave behind contorted projects for their lenders to untangle.

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