"It's a wonder to all of us that the banks bought into it and that we bought into it and that it was all based on an illusion," said Fred Hagen of Hagen Contractors.
What sub-contractor Fred Hagen calls an illusion, began back in 2005, the peak of the real estate market.
Gagan Lakhmna, along with a group of investors, bought several commercial properties through the company Creating Real Estate Innovations or CREI. With millions of dollars in loans from at least two local banks, CREI built the condos, 101 Walnut, New Street and American Lofts. Hagen, who was hired as a subcontractor on all three buildings tells Action News, financial troubles started brewing early on and so Lakhmna offered some of his sub-contractors condos instead of cash.
"101 Walnut in particular became an item of barter it was the nicest project he had in Philadelphia, it was something that was desirable to a lot of people including myself but unfortunately there weren't enough items of barter to go around."
But Hagen tells us Lakhmna's company owed the bank more money than the condos were worth. Even though, Hagen had a written agreement with Lakhmna to take possession of a condo, Bank Corp stepped in and Hagen had to pay the bank for a unit he said he paid for through his work for Lakhma. Hagen says he's out a ton of money for his company's work at the three properties.
"I have no hope what-so-ever of getting my $2 million."
That's because according to documents filed in court, Lakhmna also owes money to dozens of other contractors. Sunlight Electrical Contractors tells Action News they're owed money for their work too.
"What it does is sometimes limits our ability to seek more work and we have to reorganize and we had to cut down to probably 100 electricians on a regular basis to maybe 50."
The sub-contractors aren't the only ones owed. According to court filings, Lakhmna owes Abington Bank close to $15.5 million for American Lofts which will go up for auction on June 2nd.
Lakhmna would not speak with us on camera but told us over the phone that this is quote, "not a bad thing and some projects you just have to walk away from."
Realtor Kathy Conway says Gagan was a victim too.
"I think he was just caught in the market conditions."
The question the sub-contractors are asking is how did the banks lend this man and his investors tens of millions of dollars? St. Joseph's ethics professor Dr. John McCall blames, among other things, the lack of loan regulation that dates back to the Clinton administration.
"It's exactly the kind of speculative behavior that was unchecked and unregulated that helped create the Great Depression and we've gone back to that."
"The government is bailing out the banks that made these decisions the banks themselves seem to be letting the developers walk away," said Hagen. "And we're just being short changed in this process and being left to wither in the vine. No one has offered to bail us out and we're the kind of people who built this country."
Abington bank said they cannot comment because of their pending lawsuit against Lakhmna's. Bank Corp told us over the phone that they did conduct a full credit underwriting before lending Lakhmna's company the money for 101 Walnut. A spokesperson said at the time, it made sense to lend the money but in hindsight it probably wasn't a smart decision.
