All bankruptcies are complicated.
And certainly a bankruptcy involving a high-profile project such as The Landmark in Greenwood Village is especially complicated.
The company that owns it provided this question and answer to address many issues and facts surrounding the Chapter 11 bankruptcy filing.
Q. Which entity filed for Chapter 11 reorganization?
A. Everest Holdings, LLC; EDC Denver I, LLC; and 7677 E. Berry Avenue Associates, L.P. (7677), the entity that owns The Landmark and The Meridian residential towers, and The Village Shops retail project, filed a voluntary petition for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court in Colorado. The filing does not include The European Village of Homes, which is a separate entity.
Q. Why is the Landmark going into Chapter 11?
A. The primary reason the entity that owns Landmark filed for Chapter 11 protection is that its construction lender, Hypo Real Estate, has been unwilling to provide a short term loan extension to facilitate the pay down of the remaining loan. The $182 million loan has been paid down by the owner approximately $90 million since May of 2008, to its current balance of $182 million. The ownership entity, 7677 East Berry Avenue Associates, L.P., owns The Landmark and The Meridian residential condominium towers, and The Village Shops retail project. 7677 filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court in Colorado in order to restructure and extend its loan with Hypo.
The deterioration of the local and national residential sales market, combined with the inability of prospective residents under contract to sell their existing homes, led to a slowdown in the projected sales at the project and corresponding loan pay down that would have resulted. Hypo has been unwilling to provide an extension of the November 1, 2009 maturity for even a few months without requiring us to agree to bulk sales and significant discounts on all remaining residences.
Q. Is Landmark going out of business?
A. No, absolutely not. The Landmark has been a tremendous success, even in this difficult economy. Since opening in May 2008, 139 condominium homes have been purchased at The Landmark and The Meridian, totaling approximately $95 million in residential sales. The Village Shops have also flourished, with over 80 percent of the available 185,000 square feet leased to some of Denver’s most successful restaurants, retailers and entertainment venues. In the past three months alone, four new retailers and restaurants totaling nearly 13,000 square feet have made lease commitments for available space at The Village Shops.
We will continue will all normal business operations, including selling homes and leasing retail space. No retailers will close their doors because of the reorganization and there will be no disruption of the operation of either The Landmark or Meridian Towers whatsoever, or the extensive residential services provided to our homeowners.
Q. When will The Landmark emerge from Chapter 11?
A.As with all Chapter 11 proceedings, Landmark must submit its reorganization plan within 120 days of filing. It is the company’s intention to file a plan within 90 days. Once the plan is accepted by the creditors and approved by the Court, it is “confirmed” and The Landmark can emerge from Chapter 11.
Q. How much does The Landmark owe its creditors?
A. The company has assets with a current value of approximately $165 million, and debts totaling $100 million, including $93.8 million in secured construction debt with Hypo Real Estate Capital Corporation (Hypo). Since 2008, 7677 has repaid Hypo approximately $90 million toward its $182 million construction loan, resulting in a current outstanding balance of $93.8 million.
Q. How will the company fund day-to-day operations?
A. We have executed a loan agreement for a debtor-in-possession financing facility of $15 million with Carmel Landmark, LLC, an indirect subsidiary of Carmel Partners Fund III, LLC, a prominent $700 million real estate investment fund headquartered in San Francisco with offices in Denver. Carmel Partners was founded in 1992 by Denver native, Ron Zeff, who continues to serve as the company’s chief executive. When approved by the Court, the new facility will provide enough capital to the ownership entity to complete all remaining construction in the development, as well as provide funds adequate to pay for the day-to-day operations of the community going forward.
Q. What is Hypo Real Estate Capital Corporation?
A. Hypo Real Estate Capital Corporation is a New York-based real estate lending company, owned by the German company, Hypo Real Estate Holdings AG (HRE). In June 2009, the German Financial Markets Stabilization Fund (SoFFin) acquired a 90 percent stake in the share capital of HRE, effectively nationalizing the company. HRE recently reported a loss of $1.13 billion Euros for the first six months of 2009.
Q. Why couldn’t Landmark just work out an agreement with creditors?
A. Over the last several months, the ownership group has repeatedly requested a formal extension of our loan with Hypo, which matures in November 2009. Hypo has consistently indicated a complete unwillingness to renew the loan for even a few months, unless we agree to bulk sales of unsold condominiums and a substantial discount on all unsold residences. These two options would have a hugely negative impact on the value of our existing homeowners’ property and eliminate the chance of returning the invested capital to the other stakeholders in the project. After exploring every available option available to us, including extensive attempts to refinancing Hypo’s existing loan in the severely distressed capital markets, we have determined that filing for Chapter 11 is the only option available to protect all stakeholders in the project. We regret that this is our only option, but Hypo has forced the ownership group into this decision, which we acknowledge is a very unfortunate outcome given the success of the residential sales and retail leasing in such a troubled economy.
Q. Are The Landmark property values expected to drop?
A. No, The Landmark expects the reorganization to allow active selling at current market rates. The project has always been able to achieve the appraised value for financing, and developer-owned residences units have been resold at an average of 10.7 percent above the original listing price.
Q. Will the reorganization affect potential sales?
A. There is no doubt that Chapter 11 reorganization will be a deterrent to some buyers. However, there continues to be tremendous interest in the project and prospects continue to visit on a consistent basis. The Landmark will continue actively marketing to the community, and also has the luxury of an extremely successful retail center at the center of it all.
Q. What is the status of residential sales and retail leases at the community?
A. The Landmark has been a tremendous success, even in this difficult economy. Since opening in May 2008, 139 condominium homes have been purchased at The Landmark and The Meridian, totaling approximately $95 million in residential sales. The Village Shops have also flourished, with over 80 percent of the available 185,000 square feet leased to some of Denver’s most successful restaurants, retailers and entertainment venues. In the past three months alone, six new retailers and restaurants totaling nearly 17,000 square feet have signed leases for space at The Village Shops.
Q. Does this filing include The European Village of Homes project?
A. The filing does not include The European Village of Homes project, a 13-acre, 216-unit master-planned community just to the south of Landmark, slated to be developed as the second phase of the project.
Q. Will Everest Development and Zack Davidson remain with the project?
A. Yes, in fact, Carmel Partners has required that Zack Davidson and the Everest Development team remain in place throughout the duration of the project as a condition of their loan.
Q. Will Re/Max Professionals/Classic New Home Sales still market the project?
A. Yes, RE/Max Professionals/Classic New Homes will continue to market the project. It is anticipated that the entire sales team will stay intact during the reorganization.
Q. What is the effect of the reorganization on future residents who have not yet closed?
A. Future residents are still under contract and their deposits are protected by Land Title. The Landmark expects to close on these units in the very near future.