Breakwater Concludes Loan Workout on Texas Property

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Completes First-Ever Successful Tenant-in-Common Bankruptcy

Breakwater Equity Partners, a consulting firm specializing in commercial loan workouts, has completed the first-ever successful bankruptcy restructuring of a tenant-in-common (TIC) owned property. The 111,000 square feet building, located in the Dallas suburb of Grand Prairie, was purchased by a group of individual investors in 2006.

Five years later, facing a maturity default and unable to refinance due to a decline in value and an impending lease expiration, the property went into foreclosure. The TICs engaged Breakwater approximately two weeks before the scheduled foreclosure date. When the lender refused to negotiate a loan extension, Breakwater placed the property into Chapter 11 bankruptcy.

“The borrowers had exhausted all other alternatives,” said Phil Jemmett, CEO of Breakwater Equity. “We prefer not to go into bankruptcy – we have found that it is much more efficient to resolve these disputes through negotiation. However, in this case we had no choice but to fight it out and get a discounted payoff.”

The bankruptcy filing set off a lengthy series of disputes with the lender. While successfully litigating a variety of issues against the lender, Breakwater also convinced the tenant, defense contractor Lockheed Martin, to execute a five year lease extension with a five year renewal option. This turned out to be a crucial factor in obtaining new financing to take out the existing lender. The transaction closed on Monday.

The TIC ownership structure, which proliferated in the early and mid-2000s, enabled individual investors to participate in large commercial real estate projects largely unavailable to them previously. Most TIC deals were consummated at or near the top of the commercial real estate boom and financed with Commercial Mortgage Backed Securities (CMBS) debt. Many TIC properties are now distressed either because they are not generating sufficient cash flow to service their debt, or because they cannot re-finance their properties when the loans mature due to a steep decline in property values. A large number TIC investors have already lost their properties to foreclosure.

“Many TIC investors don’t know what to do when their property gets into trouble,” said Jemmett. “A negotiated workout is usually the best option for everyone, but lenders are under great pressure themselves and are not eager to negotiate. With this ground-breaking case we have proven that bankruptcy can be a viable restructuring option for TICs,” said Jemmett.

New debt financing of $6MM was provided by affiliates of Karlin Real Estate of Los Angeles. Breakwater invested over $1MM in new equity into the property. “The project will now have steady, long term cash flow,” said Breakwater CFO Armand Nicholi. “By successfully restructuring the debt we have taken a non-performing property and turned it into a worthwhile, cash flowing asset. This is our mission at Breakwater.”

Attorneys Steve Burr and Todd Whilton from the Boston office of Eckert Seamans represented the non-debtor TICs.

Breakwater Equity Partners is a boutique workout consultancy which specializes in distressed real estate and operating company debt and has been engaged on over 200 commercial loans since its inception. Armed with a team of legal, financial, economic, banking and real estate experts, Breakwater Equity offers a unique, multidisciplinary approach to debt restructuring.

About Breakwater Equity Partners
Breakwater Equity Partners is a privately-owned real estate consulting firm located in San Diego, CA, providing commercial loan workout strategies and negotiation services to property owners and investors throughout the U.S. The Breakwater team, consisting of experts in finance, banking, real estate and law, has worked on over 200 commercial loan workouts throughout the US, with deep experience in a wide variety of real estate asset classes, including office, industrial, retail, multi-family, mixed use, master-planned communities, residential and land development, golf courses, and farming operations. Breakwater also specializes in Tenant-in-Common loan workouts. For more information on Breakwater Equity Partners, please call 858-490-3630 or visit http://www.breakwaterequity.com.

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Danielle Gano/Melissa Marasco
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