The second phase of Downtown Madison 's largest private housing project is in default to the tune of more than $26 million, its lenders said in court documents that seek foreclosure of its three mortgages.

The fate of the newly completed Metropolitan Place II, a 164-unit condominium tower facing West Mifflin Street, could indicate that national housing trends are reaching Madison, thought by some to be more immune than most places to twists and turns in U.S. economy.

"This shows that the national foreclosure crisis has hit Downtown Madison for the first time in any meaningful way, " said Ald. Mike Verveer, whose 4th District contains Metropolitan Place II.

But while the foreclosure action against developer Cliff Fisher and his company, Buckingham LLC, comes as market conditions have forced delays or inspired changes to other major housing projects throughout the city, others are not so certain the condo market Downtown is to blame.

Spokesmen for the city and real estate industry declined to speculate on exactly what caused Fisher 's struggles at Metropolitan Place II or if they 're a sign of things to come.

"It 's not insignificant, " said George Twigg, spokesman for Mayor Dave Cieslewicz. "It 's hard to say how much of this situation is over (Fisher 's) financial circumstance and how much is a reflection of broader trends. "

Construction of several ambitious condo projects and conversions of apartments to condominiums in recent years have flooded the market, developers and the real estate industry say.

"There 's certainly a significant inventory that will have to be absorbed, " said John Deininger, executive vice president of the Realtors Association of South Central Wisconsin. "I anticipate we 'll see fewer (condo) projects come to the drawing board. "

On the East Side, Todd McGrath has delayed construction of his mixed-use Union Corners project, and at the Capitol West Downtown and Hilldale on the West Side, developers have revised later phases from condo towers to hotels.

Debt repayment

According to a foreclosure action filed last week in Dane County Circuit Court, Buckingham took out loans of nearly $43.2 million from La Salle and Associated Banks in October 2005. The loans were to be repaid by Oct. 24, 2008.

According to the lawsuit, Buckingham defaulted on the loans by failing to make payments of principal and interest since Oct. 1. As of Jan. 25, the lawsuit states, Buckingham owed La Salle and Associated more than $26 million, plus interest of nearly $601,000.

Buckingham also took out an additional $3.5 million loan from La Salle, which is also being foreclosed, the lawsuit states.

"Buckingham is either insolvent or is in imminent danger of insolvency as defined in Wisconsin statutes ... and continues to dissipate La Salle 's and Associated 's collateral, " the lawsuit states.

The banks want the court to appoint a Milwaukee attorney as receiver for Buckingham and want authority to take possession of Metropolitan Place II, among other actions. Spokespersons for the banks did not return calls for comment.

Fisher 's attorney, Tim Homar, said the project is moving forward and the lawsuit boils down to the banks ' version of when payments were due and Fisher 's version.

He said Fisher will oppose any move to put the project into receivership. Without receivership, he said, Fisher could continue to sell units and make his payments. But under receivership, Homar said, the banks could sell off condos at "bargain basement prices. "

"We have people who have poured their heart and soul into this project, " Homar said.

A hearing is set for Feb. 14 before Dane County Circuit Judge Diane Nicks.

The court action shouldn 't affect anyone who has already bought a Metropolitan Place II condo, Deininger said.

Willy Street Co-op

But left in the lurch by the foreclosure action is the Willy Street Co-op, which signed a lease with Fisher to open a 8,750-square-foot grocery store in Metropolitan Place II. The co-op learned in December that there was trouble when its attempt to draw money from a $750,000 tenant improvement allowance, which was to be used for interior construction, was denied.

The co-op 's general manager, Anya Firszt, said the co-op did not know that Fisher had defaulted on a loan repayment.

"It 's put a stop to what we were working on, " Firszt said.

So far, she said, the co-op has not been looking at other sites. "It still seems to be a good site to locate a grocery store, " Firszt said, but she doesn 't know how long the co-op can wait. "How long can we continue to suffer the status quo? I 'm not prepared to say that. "

Should Metropolitan Place II go into receivership, Firszt said, she is hopeful they will have an opportunity to deal with the receiver.

Homar said Fisher remains dedicated to opening the Willy Street Co-op at Metropolitan Place II.

Market forces

What happened with Metropolitan Place II, Homar said, is the result of market forces and the national financial downturn. Lenders such as La Salle, which recently became part of Bank of America, are becoming increasingly skittish and watching their investments more closely, he said, and are looking to protect their interests.

According to city property records, only 61 of the building 's 164 units -- about 37 percent -- have been sold. Homar said there were two closings last week and offers on condos continue to come in.

"Actually, we 're witnessing an uptick, " Homar said. Prices on offers aren 't as high as they would have been two years ago, he said, but agreements with the banks keep prices from falling very far.

Verveer agreed that Fisher appears to be the victim of bad timing, opening Metropolitan Place II as the Downtown real estate market was weakening.

"Cliff 's was one of the last major Downtown condo developments to be built, " Verveer said. "He 's feeling the full brunt of the softening Downtown market. "

Fisher projects

Despite the apparent setback at Metropolitan Place II, Verveer said, Fisher has two major apartment projects before the city, including a building on North Butler Street and a rehabilitation and expansion of the former St. Raphael School at West Washington Avenue and South Henry Street.

Fisher, who built his business doing smaller projects, may lack the experience or collateral to buy time from creditors, some experts said.

But the market is still sound, industry spokesmen said.

Dane County had the fifth-best home sales on record in 2007, condos are still selling, and the regional economy is still performing far better than most places, Deininger stressed.

Dan Peterson, spokesman for the Alexander Co., which is developing Capitol West across West Washington Avenue from Metropolitan Place I, said sales there have picked up in the last 90 days.

"There 's always going to be a demand to live Downtown, " he said.

CONDO PROJECTS

Several major Madison condominium projects have faced problems, delays or changes to other uses in the past year. Each was planned as condos mixed with commercial space.

METROPOLITAN PLACE II: 333 W. Mifflin St.  What: 13-story, 164-home condo tower. Status: Partially occupied, faces foreclosure. Developer: Cliff Fisher.

CAPITOL WEST: 333 W. Washington Ave.  What: A planned 13-story, 84-home condo tower was changed to an 11-story, 151-room hotel. Other condos remain part of the project.  Status: Under construction.  Developer: Randy Alexander.

UNION CORNERS: East Washington at Milwaukee What: Included 140 condominiums.  Status: On hold.  Developer: McGrath & Associates.

HILLDALE REDEVELOPMENT: Midvale at University  Status: A 90-unit condo tower was changed to a six-story, 140-room hotel. An 11-story, 112-unit condo tower is delayed indefinitely. Other condos are up and running.  Developer: Joseph Freed & Associates.