Credit Crunched: How One Developer's Prison Sentence Over An Empty Building Tells The Story Of The Recession
DULUTH, Ga. — The glass doors of 2645 North Berkeley Lake Road are smashed open. The ground floor of the seven-story office building is partially ground and vines grow wild from the earth up the walls.
Thirty miles north of Downtown Atlanta, this building has been vacant since it was built 10 years ago, an eerie, graffiti-covered reminder of the excesses that led up to the Great Recession.
A Duluth Police Department officer patrolling the grounds said the smashed glass doors happened in the past couple of weeks. It is the latest in a string of more than a dozen break-ins and vandalism incidents at the building, according to police records.
Despite the crimes that have been committed on the building's premises, the most noteworthy person to serve time over the building was the man who built it.
Ron Onorato served as CEO of the developer NorthPoint Group and was the brains behind the office building and the mixed-use project around it. But after his company went belly-up and the property was foreclosed on in 2010, federal law enforcement officers charged Onorato with defrauding two banks by illegally diverting proceeds from more than $35M in construction loans.
In a plea deal with federal prosecutors, Onorato was sentenced to six months in prison.
This story is not only the tale of a derelict building-turned-poster child for pre-recession financial excess, but also the reckoning of a developer who went to prison after being scammed by a con artist promising a way out of his financial mess.
“I've done a lot of cases, but I'm not sure I've ever indicted one of my primary witnesses," said Assistant U.S. Attorney William McKinnon, who was on the team that prosecuted Onorato.
“I never expected to happen what happened to me. I think it was very unfair” Onorato told Bisnow. "But when you kind of get boxed in [by] the U.S. government, what are you going to do?"
The Roaring 2000s
In the early 2000s, lending standards were far from stringent as banks turned to the commercial mortgage-backed securities market to buy loans pooled together. Commercial lending skyrocketed from just over $1 trillion in 1995 to $2.6 trillion in 2005, and many of the loans were funneled into the CMBS market.
By the start of 2005, many developers saw Atlanta’s office market as a cash cow with no end in sight. Bank lending gave them incentive to make big gambles on office buildings without any commitments from prospective tenants.
Between 2005 and 2010, developers built more than 17M SF of new office in Atlanta, including 4.1M SF in 2007 alone, according to Colliers International Atlanta. Then the Great Recession hit; in 2011, only 38,700 SF of Atlanta office was under construction.
“Remember there were lots of banks around back then that aren't around today," Patterson Real Estate Advisory Group CEO Lance Patterson said. "It was easier, more aggressive back then. Things got done that shouldn't have gotten done."
That was the environment in commercial real estate when Onorato and his firm proposed a 20-acre-plus development behind a Super Walmart, just a couple of miles west of Interstate 85, in 2005. A nexus of commercial activity had sprouted up along Pleasant Hill Road, including Gwinnett Place Mall and NCR's suburban office park headquarters.
Onorato envisioned a multiphase project named Point Berkeley International Village with office buildings, a host of retail buildings, a spa, a bowling complex, a hotel and condominiums.
After getting approvals from the city later that year, NorthPoint launched the first two phases in quick succession, building two smaller office buildings and a two-story retail center. NorthPoint sold the office as condominiums, and all of them were bought by Asian businesses and investors, Onorato said.
“We sold that first phase out the first few months," he said. "There was such a demand.”
Gwinnett County's Korean-American population had boomed since the turn of the millennium. The area around where Onorato's building was developed is now referred to as "K-Town," and the county is home to 41.9% of the state's Korean-American population, according to the 2014 American Communities Survey, and it has more than doubled since 2000.
“At the time that I think [2645 North Berkeley Lake Road] was being built, there was a big frenzy in the Asian-American community to find development opportunities for the whole area," veteran Gwinnett residential broker Tim Hur said.
As Onorato sold spaces in the retail portion, his company embarked on the third phase of the project: the office building, a retail center later designated for a Starzone U.S.A. bowling facility and a parking deck.
The company broke ground and went vertical on the office building, with the goal of marketing it to Asian businesses seeking a Class-A office environment.
Soon after, things fell apart.
The Lehman Effect
Onorato said he remembers the day everything changed: Sept. 15, 2008, the day Lehman Brothers filed for bankruptcy.
“The day Lehman went out of business, it was like somebody turned the switch off,” Onorato said.
While typical commercial projects are held up for lease to tenants, the demand by the Korean community in particular prompted NorthPoint Group to sell units to users in the new projects. Before the crash, Onorato said he pre-sold 30% of the office building, along with securing the main grocery space to a major Korean chain as well as a number of the retail spaces.
But the credit crunch dashed all those plans.
“The combination of them pulling out and people not being able to close ... sales immediately stopped,” he said.
As his customers were losing their own financing, Onorato had hefty construction loans that he had personally guaranteed. To make the payments, he began to use his own personal funds, he said, biding time in a desperate search for permanent financing.
“As good as the condo idea was, when things fell [apart], it was the absolute worst idea,” he said.
The entire Point Berkeley International Village project had to pivot. No longer were they going to be sold to users. Now Onorato had to find a bank willing to lend money not only to pay off the construction loans, but also front more capital for NorthPoint Group to be able to finish out the interiors of the buildings — especially the office building. That, he said, would allow him to get companies into the building as lessees.
“A downturn is one thing,” he said. "You never expected that there wouldn't be one bank domestically that was lending. They were just pulling back fast. I couldn’t find it anywhere domestically."
Too Good To Be True
Through a group of brokers, Onorato was introduced to Matthew Kleinsmith, who claimed to have the ability to garner permanent financing for the project with Caixa Bank in Spain.
Kleinsmith lured Onorato to Cincinnati and invited him to stay at a $3M mansion that he allegedly owned, according the FBI agent investigating their business dealings. For good measure, Kleinsmith parked his Ferrari out front when the Georgia builder got there.
Onorato said that Thanksgiving weekend spent with Kleinsmith gave him the confidence to wire $1.75M to the alleged broker for a permanent loan from the Spanish bank.
The loan never materialized. By September of 2010, Onorato tapped out and filed for personal bankruptcy.
In January 2011, Onorato and the former executive of an Atlanta construction firm made a trip to Gainesville, Georgia, and met with an FBI agent named David Wylie. Onorato told Wylie Kleinsmith had duped him and stole the $3M deposit, according to court documents.
Sure enough, federal prosecutors determined Kleinsmith had lied about his banking connections, and they charged him with using the funds from Onorato to pay for a loan he had from another bank.
“Kleinsmith told Onorato he had traveled to Spain and Hong Kong to get the deal through. However, the investigation later revealed that Kleinsmith did not have a passport, and therefore could not travel internationally as he claimed that he had,” Wylie testified in court. “Eventually, Onorato was forced to declare bankruptcy and go out of business.”
Kleinsmith eventually pleaded guilty to a single count of wire fraud and was slapped with five years probation and demands that he repay $3M to the defrauded parties, including $2M to Atlanta-based Ordner Construction, which acted as the general contractor for the Duluth building.
“These desperate times are really what breed fraudsters. I needed a loan. Here was a guy who [said he] could get it and fooled me into believing he could get it,” Onorato said. “When I found out he didn’t have a passport, it blew my mind. The level of deception was incredible.”
The Big Backfire
Onorato's decision to go to the FBI, hoping for justice after being swindled, would undo him further. Law enforcement began to look into how he had handled his own loans.
While investigating the case, the agent testified that Onorato admitted to using construction loan funds for other purposes, according to documents.
“That's not a normal — to me that's not a normal practice that you would do in a loan situation," Wylie said. "He was using the money for another purpose other than what the bank had approved it for basically."
Despite the FBI warning him about his own culpability, Onorato was insistent on going after Kleinsmith, Wylie said.
“His response was we would deal with that whenever we got to it, that he wanted to see Kleinsmith prosecuted,” Wylie said.
In 2015, federal prosecutors charged Onorato and another executive with three counts of defrauding both Integra Bank and Huntington National Bank, which loaned the developers more than $35M for the office project. Instead of drawing on the loan for construction activity, prosecutors maintained that Onorato used nearly $2M for other purposes, according to the lawsuit.
“Some of it he diverted to his own use," Assistant U.S. Attorney William McKinnon told Bisnow. "He was kind of operating a Ponzi scheme in one sense. He had other developments, other properties to pay money on. He was robbing Peter to pay Paul."
Two years later, Onorato pleaded guilty to one of three counts against him. The money he was convicted of spending illegally was independent of the funds he lost with Kleinsmith, which were not subject of any criminal charges, McKinnon said.
He was sentenced to serve six months in prison and another two years of suspended release. Onorato said he was released after three months.
“Once you get boxed in, you’re not getting out,” Onorato said. "To go away from a short period of time was better than trying to fight [the charges]."
“I spent my whole career dealing with money and concluded that people do funny things when it comes to money. Particularly when things get hard,” Lance Patterson said. "Everybody was in trouble at that point."
Patterson — a real estate adviser who was uninvolved in Onorato's dealings — said some developers had personal money vested in projects and loan guarantees when the credit crunch began.
"It just snowballs and you can see where people might take some shortcuts,” he said.
New Owners, Uncertain Future
Integra took the office building and retail property back in November 2010. A group called Berkeley Point Associates bought it from the bank for $6M four years later, according to Atlanta property firm tracker Databank, just more than one-tenth of the value of Integra and Huntington's construction loan.
Two years after that, the office building was sold to J2M Property Inc. for $2.25M.
Through it all, no tenant has ever set foot in the seven-story building. The only people to have ever gone inside have been its owners, brokers, city officials, police and vandals.
The current owners — including an executive with Suwanee Georgia-based S&A Industries — are in talks to put the unnamed building up for sale again on online property auction site Ten-X, S&A Industries Chief Financial Officer JC Bambach said. He declined to comment further.
City of Duluth Economic Development Manager Chris McGahee said 2645 North Berkeley Lake Road has been vandalized “terribly” in the decade it has sat empty. Criminals have done everything from strip the facility of all its copper wiring to ripping the HVAC unit off the roof and dropping it seven floors to the concrete below.
“[Police] have been out there time after time after time,” McGahee said. “Everything that could have been looted from it was looted.”
The Duluth Police Department confirmed it has been called out to that location nearly 20 times since 2008. Security cameras have caught suspects spray painting the walls. A truck came to the property to illegally dump trash. Four men were apprehended for smoking marijuana in a car parked on the property.
McGahee said the plan, as it was approved, made sense in the larger mixed-use context, especially since it was targeted to the Korean-American community.
“When you see that sales brochure to know what the grandeur of what it was going to be,” he said. “[Onorato] did not build that building as an island. It was part of a big master plan. And it does make sense when you see that plan. I think I have hope for its future.”
Not everyone agrees it ever made sense. At the time it was built, there was a “big frenzy in the Asian-American community” to grab real estate opportunities in the Duluth area, Hur said, but the building is off the beaten path.
“If you don’t [go] behind North Berkeley, you’re not going to find it,” Hur said. “A lot of us in the realty community and Asian community kind of scratched our heads a little bit. 'God, what's going to happen to that building?' Everybody who lives there knows about it.”