Real Estate, Workout and Foreclosure

By Brian Meltzer

MPS has been in business for over 15 years.  During the first 12 years we concentrated our practice in the area of representing middle market businesses, with a niche in representing homebuilders, commercial developers and condominium converters, as well as financial institutions which made acquisition, development and construction loans to real estate developers and builders.

In 2006, we saw problems developing in the housing market.  By 2008 every one of our clients was running into serious problems with stalled developments.  It was like witnessing a slow motion train wreck with cars teetering and then toppling off of a cliff.  We realized that our core businesses of representing homebuilders and construction lenders would change significantly. 

As a relatively small, lean firm we pride ourselves on our ability to quickly adjust to changes in the market and be on the cutting edge of developing trends.  By early 2007 we knew that for the foreseeable future the real estate industry in the Chicago area would be dominated by workouts, forbearance deals, deed in lieu transactions, foreclosures and bankruptcies.  We focused on preparing to represent our clients in these areas with the same quality and creativity that our principals displayed while representing players in the real estate industry during the past 35+ years. Many of our lawyers were deeply involved in the cyclic downturns and recoveries from the mid 70s through the late 80s and had dealt with many of the problems and issues that arise in declining real estate markets. 

In 2007, a Chicago area based homebuilder, Neumann Homes, filed under Chapter 11 of the Bankruptcy Code.  We represented several secured creditors in that action and became familiar with and identified many of the issues that would face builders, developers and lenders in the next few years.  In 2007 we also started to do a significant amount of forbearance, foreclosure and workout work on behalf of lenders.

In early 2009 we represented one of our long time Chicago area homebuilder clients, Kirk Homes, when it filed under Chapter 11.  The secured lenders were a group of banks lead by Chase, which included Bank of America.  In order to be able to continue working for Kirk in the bankruptcy action, we could no longer represent Chase or B of A, neither one of which would waive conflicts like they had done routinely in the past, especially when litigation was involved. 

We then made a conscious decision to refuse additional work from Chase, B of A and Wells Fargo so that we could continue to represent developers and builders in workouts and bankruptcies without any new conflicts of interest. In the Kirk bankruptcy we attempted to get the court to approve what is commonly known as a “cram down” plan which would have effectively allowed Kirk to exit bankruptcy with modified loan terms to which the lenders objected.  After a contentious trial, the Judge refused to confirm Kirk’s plan.  The lenders’ mission to put Kirk out of business will result in the lenders realizing substantially less of a return than they would have received under the plan that they fought so hard and spent so much money to defeat. 

The head of our bankruptcy group, Forrest Lammiman, who was the head of bankruptcy for Lord, Bissell and Brook for many years, joined us in 2009, shortly before we filed Chapter 11 for Kirk.  Forrest works closely with David Kane and Steve Rogovin, both of whom are experienced bankruptcy litigators.

As the result of a referral from a large firm that could not be adverse to B of A, we took the owner of a vertical retail complex in Chicago through Chapter 11 where B of A was the secured lender.  Although the owner was not able to retain ownership of the complex, an agreement was reached whereby the complex was sold out of the bankruptcy and the individual guarantors were released from liability for any deficiency. 

Over the last year we represented a group of lenders that held a secured loan on a busted high-rise condominium in the South Loop area of Chicago. We negotiated a deed-in-lieu transaction on behalf of the lenders, which was followed quickly by the sale of the unsold balance of the project to an investor, without the need to go through bankruptcy. This transaction was accomplished by a team of our experienced real estate lawyers and paralegals headed by Allen Balk, a veteran of the S & L crisis of the late 80s, where he worked as the chief workout officer for a large international bank.  Allen subsequently obtained his law degree and joined us.  Allen combines his ability to quickly identify the most significant issues in a workout situation with his well developed legal skills to come up with practical and economical solutions to what often appear to be insurmountable issues and problems.  

In 2010, we represented the developer of a stalled new construction twin tower high-rise condominium project when it filed under Chapter 11 in Milwaukee.  Recently, the unsold balance of the project was successfully sold through what is known as a “Section 363” sale. 

We had familiarity with both the South Loop condo and the Milwaukee condo, having worked with the original developer to formulate the development plan and draft the documentation for both projects, which included provisions designed to give the developer or a successor developer maximum flexibility to deal with the project if it were to run into problems, which, of course happened, but not because of the plan or the documentation.

We are currently representing secured lenders in Chapter 11 proceedings involving two large hotels, one near O’Hare Field and one in California. We are also representing two secured lenders in the recently filed Gas City Chapter 11 bankruptcy case.

We expect that the depressed real estate market in the Chicago area will continue for at least the next year. MPS is available and eager to work with and represent developers, investors and/or  financial institutions in any aspect of a workout, foreclosure, deed in lieu transaction or bankruptcy.

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