Lender forecloses on Alamo Drafthouse

EDINBURG - The multimillion-dollar Alamo Drafthouse is set to be auctioned Tuesday and city officials hope a new developer will revive the failed project.

After repeatedly pushing back deadlines for a year but publicly promising to open the area's first dinner theater, McAllen-based developer Paul Garza, president of One Orion Properties LLC, is facing foreclosure, mounting debt and a lawsuit from one creditor.

Theater owners and city officials, however, are optimistic a new developer will complete construction on the 20-acre project that Edinburg hoped would turn the intersection of Trenton and Jackson roads into a Rio Grande Valley shopping destination.

"The Drafthouse will remain at the location," said Ramiro Garza, president of the Edinburg Economic Development Corp. "Unfortunately, there's been these issues with the complex that prevented it from being finished."

Those troubles began soon after the project failed to meet its first publicly announced deadline for completion in March 2007. Beginning in July that year, contractors began piling on more than a dozen liens against the property for unpaid bills topping $500,000.

Paul Garza did not respond to repeated messages left this week on his cell phone and with friends.

Operating under a variety of companies - including Guton LP, Trenton Crossroads LLC and One Orion Properties - he first secured financing for the Alamo Drafthouse construction in May 2006 from First National Bank, according to county records. He twice added to the $4.3 million loan, borrowing a total of more than $7.6 million from the Edinburg-based bank.

When the project was announced in 2006, the Edinburg's Alamo Drafthouse was to become the Austin-based theater and restaurant chain's only location south of San Antonio.

The venue was set to have six screens and a full-service restaurant that would serve beer and liquor. The theater was also expected to anchor new development along Trenton Road, where city officials hoped to develop retail shopping that would compete with the rows of strip malls in neighboring McAllen.

A handful of shops and restaurants, including Applebee's and Buffalo Wings & Rings, have opened but the full-scale development has not materialized.

"We are disappointed the plaza, the center, has not been opened," said Ramiro Garza, the Edinburg economic development official. "There's quite a bit of space that could have been utilized already."

The city of Edinburg, which had promised to extend close to a quarter of a million dollars in financing to Paul Garza for construction of utilities at the site, did not deliver the money because Paul Garza failed to hold up his end of the bargain to boost the city's economic development. The city, however, gifted a half-acre to the project in April 2007, according to county records.

Six months after extending the last multimillion-dollar loan in April 2007, First National Bank sold the debt to New York-based TenRock Capital Fund LP, a private lender that specializes in short-term financing for businesses.

TenRock extended an additional $2.5 million on the condition that the total debt would be paid in full by early August 2008. Paul Garza failed to meet the deadline.

Now, the property that Paul Garza borrowed more than $10.2 million against is set to be auctioned outside the Hidalgo County Courthouse on Tuesday. He can avoid foreclosure if he declares bankruptcy in federal court.

He has not done so, according to court records.

Joe Prestia, a McAllen-based lawyer who officials said was representing Paul Garza, did not respond to repeated messages left this week at his office and on his cell phone. Company phone numbers Paul Garza provided on several public documents have been disconnected.

TenRock is expected to seize control of the property Tuesday, as officials said it was unlikely a buyer would bring millions of dollars in cash or bank checks to bid for the property at the courthouse auction.

David Katz, president and chief executive officer of TenRock, declined to comment for this story, saying that doing so would be inappropriate. Lenders are often reluctant to comment on borrowers, as strict laws could hold the lender liable if the comments ended up hurting the sale of a property.

Contractors involved in the Alamo Drafthouse project, meanwhile, continue to line up to demand payment. After TenRock purchased the debt, most of the liens were resolved, but within a month a new slew of liens was placed on the property.

Paul Garza owes more than $600,000, including almost $300,000 to Cloud Industries Inc. for failing to pay for projectors, screens and other movie equipment, according to county records.

Brandon Arceneaux, co-owner of the Alamo Drafthouse, said a contract with Paul Garza's firm stipulated the theater be opened by May 4, 2008.

Arceneaux said his firm, Reel Deal Dinner Partners LLC, has not discussed whether to take legal action against Paul Garza.

Arceneaux, who is also developing a new Alamo Drafthouse in San Antonio in addition to the one location he already owns with partner Chris Hoegemeyer, said he is still optimistic about completing the Edinburg project.

"We don't have any tangible time lines in place," he said. "We do know that our commitment to the project won't change."

Officials have not spoken with Paul Garza in months, but they said they were working with other partners, including Antonio Karam.

Paul Garza failed to respond to a lawsuit from First National Bank, prompting it to file for a default judgment against him, seeking more than $97,000 for an unsecured business loan he took out in January.

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