Persistent difficulties with obtaining credit financing and a number of completed condo units sitting idle have forced the developers of Midtown Village in Orem to become reluctant landlords in a stagnant housing market.

In recent weeks, a sign seeking renters has quietly emerged at the entrance of the stalled multi-million dollar mixed-use project in Orem. Midtown converted to rentals in part because only four units of a total of 310 condo units in the project's proposed north, south and west towers have been sold so far.

"The owners may be trying to generate some income off areas that have been completed. When you get more people in there, it'll hopefully help attract more commercial businesses to the main floors," said Stephen Earl, assistant city attorney for Orem.

Kylan Lundeen, an on-site manager for Midtown, didn't return calls for comment on rental rates, amenities or the number of residential units available for lease.

According to Orem city, only 26 condos in the project's south tower have been issued certificates of temporary occupancy. Fourteen other condos in the proposed 78-unit south tower are near completion, but aren't ready for occupancy. The vast majority of the project, about 270 condo units, remains unbuilt.

Construction of the $350 million project stopped in February when owner Larry Myler had difficulty selling the condo units as the housing slump worsened. That in turn affected his ability to get additional financing to pay off his contractors and subcontractors. And with the national recession deepening, questions are mounting whether Midtown's developers can secure financing to complete the project.

No certificates of final occupancy will be issued until all 310 condo units are completed, said Tamara Beardall, a permit technician with Orem city. But the 26 condos in the seven-story south tower that were issued certificates of temporary occupancy between November and December of 2007 can be rented, she said.

"The south tower's first two floors, which are meant for retail, are completed, as well as some of the condos for the third to sixth floors. The seventh floor, which is meant for customized condos, won't be built until there's a buyer for them," she said. "The north tower isn't completed at all, and the west tower, which is at least one and a half times the size of the south or north tower, is unbuilt."

The Orem City Council on Tuesday voted to roll over a $3.5 million interim warrant it issued several years ago to pay for its share of three parking structures at Midtown.

The warrant, a short-term financing mechanism, is scheduled to be due on Dec. 31, but will be rolled over to Feb. 13, to give the city more time to obtain more favorable long-term financing to pay off its $3.5 million loan to KeyBank.

The city is considering putting in place a long-term financing mechanism, in the form of 20-year bonds, of which proceeds from bond sales will be used to pay the warrant.

"But the credit markets are very difficult right now, and I think the terms you can get for long-term financing aren't the most favorable," Earl said. "Still, short-term financing is much more expensive because of the state of the credit markets. Our short-term financing rates with KeyBank are now at about 10 percent per year, compared with the 5 percent or 6 percent we used to pay."

The warrant, which was issued as part of the Special Improvement District created by Orem in 2004 to fund public parking construction, is secured by assessments against Midtown's completed condos. The assessment is a one-time lump sum that's supposed to be paid to the city by each condo owner upon closing. The city had planned to use those funds to make payment on the bonds -- the first of which is due Dec. 1, 2009.

But because Midtown's developers can't sell enough condos, they are now responsible for paying the annual assessments for about 20 years starting June 1, 2009.

The first annual assessment is estimated at around $450,000, Earl said.

But Earl said the city may have to amend the pending assessment because parking for the west tower isn't built. So far, only two parking structures at the north and south towers are completed.

"We may have to eliminate assessments that were going to be assessed against the west tower, which isn't built. We'll make a decision between now and June 1," Earl said.

If the Midtown developers can't make payment on June 1, then the city is in first position to foreclose on the condo units where assessments haven't been paid.

Related

• Orem threatens to auction off Midtown Village
• Orem not foreclosing on Midtown Village