Written by: Niclas A. Ferland
LeClairRyan; New Haven, Conn.
Ilan Markus
LeClairRyan; New Haven, Conn.
Examples of how the current economic meltdown impacts the chapter 11 landscape are many. The unavailability of debtor-in-possession financing in most cases makes maintaining cash levels that much more important during the reorganization process. The continuous decline of asset values across the board means that debtors, unsecured creditors' committees and, in some instances, subordinated secured lenders are leaving no stone unturned in the search of untapped value. Thus, it should not be surprising that retail store debtors, sometimes at the behest of their nonlandlord creditors, are fighting to keep cash in their coffers that would otherwise have been used to pay "stub rent" to landlords.
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Written by: Paul McInnis
Paul McInnis Inc. Auctioneer; North Hampton, N.H.
Selling Distressed Real Estate at Auction in Today's Market
With billions upon billions of dollars secured by all types of real estate already in default and the anticipation of more to follow, where does a bankruptcy practitioner turn to immediately create the most interest and maximum value for the estate? The use of auction marketing has proven itself in the sale of real property for centuries. In the present market, however, where inflexible lending criteria is prevalent and there is an extraordinary dollar volume for assets in default, one cannot simply set a date and offer any real asset to the highest bidder who shows up with a deposit check in hand. Instead, one must apply the type of auction that properly relates to the situation surrounding the distressed asset.
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Written by: Brecht Palombo
Tranzon Auction Properties: Lexington, Mass.
Do you remember when advertising a "bankruptcy sale" attracted legions of deal-hungry bidders? Not anymore: The game has changed. Real estate disposition now requires new techniques to drive values and timely sales.
Challenges
Bankruptcy sale contracts are presented and executed on an as-is, where-is and contingency-free basis. It is common, however, for bidders to rely on some financing. Unfortunately a lender's underwriting standards, even a lender's very existence, can change overnight. As a result, more successful bidders will be seeking extensions and, occasionally, re-trades in order to close. The reduced availability of capital is not only reducing the pool of investors; it is impacting the size of the transactions that many investors are able to digest.
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Written by: Kenneth W. Mann
Equity Partners Inc.; Easton, Md.
Historically, a credit bid in a chapter 11 sale has frequently been viewed as a "non-sale" event, and the parties did not feel an obligation to pay an investment banker, business broker, real estate broker or auctioneer (the professional) a commission for the result. The professional's employment agreement frequently calls for payment "from the sale proceeds," and there are no cash proceeds from which to pay in the event of a credit bid. The employment agreement is usually between the debtor-in-possession (DIP) and the professional, but unfortunately for the professional, without access to cash sale proceeds, the DIP usually will not have any money with which to pay a commission. Furthermore, it is difficult to prove benefit to the estate derived from a credit bid. As a result, a professional can do a lot of work, with no assurance of any compensation and/or have to rely on the surcharge provisions of 11 U.S.C. §506(c).
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Written by: M. Edward Owens Jr.
Lewis, King, Krieg & Waldrop PC; Knoxville, Tenn.
In a case of first impression in the circuit, the Sixth Circuit Court of Appeals has applied Federal Rule of Civil Procedure 60(b) to revoke a bankruptcy trustee's "technical" abandonment of property. LPP Mortgage Ltd. v. Brinley, 547 F.3d 643 (6th Cir. 2008). If a bankruptcy trustee files a notice of abandonment of property under §554(a) of the Bankruptcy Code, the property is irrevocably abandoned, at least when the property is scheduled or the trustee is otherwise aware that it exists. See, e.g., In re Bryson, 53 B.R. 3 (Bankr. M.D. Tenn. 1985). But property may also be abandoned without action by the trustee. Section 554(c) provides that all property scheduled under §521(1) and not otherwise administered at the time the case is closed is abandoned.
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The 27th Annual Spring Meeting: Washington, D.C. like you have never seen it before! Located a few minutes from Capitol Hill, on the historic Potomac River, the Gaylord National Resort & Spa offers the most deluxe meeting and event space in the area. This year's conference will be held April 1-4 and will have a special focus on the tough policy choices facing the new administration and Congress.
The Real Estate Committee will hold a joint session on Thursday afternoon at 4:00 p.m. with the Asset Sales Committee and the National Auctioneers Association. Gary S. Jacobson of Herold and Haines, PA in Warren, N.J. will moderate the panel for the session entitled "Maximizing the Value of Commercial Real Estate, Machinery and Equipment and Intellectual Property through the Auction Process." Panelists will include David A. Fiegel of GoIndustry USA in Owings Mills, Md., Cathy Rae Hershcopf of Cooley Godward Kronish LLP in New York, Stephen M. Karbelk of the National Commercial Auctioneers in Tulsa, Okla. and Daryl Martin of CONSOR Intellectual Asset Management in La Jolla, Calif. Click here to register today!
