The decision by the sponsor of Baywalk, a large retail complex in St. Petersburg, FL, to offer a deed in lieu of foreclosure has attracted some commentary from Traffic Court and Calculated Risk. Here is the full post from CR:
CRE Owner "Walking Away"
by CalculatedRisk on 12/20/2008 10:16:00 AM
From the St. Petersburg Times: BayWalk owner proposes deal to surrender deed, walk away (hat tip Terry)
Hoping to avoid drawn-out foreclosure proceedings, BayWalk owner Fred Bullard said Friday he is negotiating a deal to simply surrender the deed to the downtown entertainment complex and walk away.
Under the proposal, a bank would take control of the retail and restaurant portion of BayWalk and appoint a trustee to run the complex until a suitable buyer is found.And good luck pursuing him for any penalities:
The technical owner of BayWalk, STP Redevelopment, has no other assets and was created solely to own BayWalk.
As I've noted before, CRE owners are much more willing to just walk away than residential owners.
The fact that STP Redevelopment has no other assets and was created solely to own BayWalk has no bearing on whether or not Mr. Bullard can be pursued. Standard procedure for CRE loans is to have the asset held by a single asset entity (SAE) to ensure the deal is isolated from problems with other assets controlled by the sponsor. For example, if the sponsor controls two projects each held by SAEs, and one becomes insolvent while the other is still solvent, the insolvent SAE files bankruptcy but the lender on the solvent project is not affected. If both assets were held in the same entity, both projects and lenders would be involved in the bankruptcy and the lender on the solvent project risks having it’s debt reorganized as part of the plan to save the insolvent project.
This structure does not necessarily put Mr. Bullard in the clear; the lender may have required guarantees from him or others in connection with the loan. The fact the asset was held in an SAE says nothing about the existence or absence of such obligations.
Whether or not CRE owners are much more willing to walk away than residential owners is a big, juicy topic. At this point, let’s just say I’ve not seen any evidence to support the assertion.
|