Courtesy of The South Florida Business Journal
By Brian Bandell
October 5, 2014
An apartment complex in West Palm Beach that failed to complete its condominium conversion and was declared a public nuisance could be sold in Bankruptcy Court.
HFAH Clear Lake LLC filed Chapter 11 in Palm Beach County on Sept. 30 listing $4.23 million in assets and $30.1 million in liabilities. The company, headed by Hawthorne, N.Y.-based Homes for America Holdings and Daniel G. Hayes, owns the shuttered apartment complex on 11 acres at 719 Executive Center Drive.
The goal of the Chapter 11 filing is to sell the property, according to court filings. It is delinquent on taxes and has accumulated $2.5 million in fines from the city, which declared it a public nuisance.
The bankruptcy filing reads like a case study of everything that went wrong in the recession.
HFAH bought the property for $14.5 million in 2005 with the intent of converting the 180 apartments to condos and building more amenities. The existing four buildings were to be torn down. The residents left, but the work stalled after the developer was unable to pre-sell the units because of the real estate crash, Hayes said.
Hayes said no one has been taking care of the property. It's been stripped of doors, windows and copper piping, he added.
"It's in nobody's interest to let it sit like this," Hayes said.
The project received two mortgages for a combined $19.25 million through USA Commercial Mortgage Co. The lender then sold fractional interests in those loans to 243 individuals, families and family trusts throughout the country. All of those parties are listed as creditors in the case, with debts ranging from $25,000 to $7 million.
USA Commercial Mortgage filed Chapter 11 in 2006 amid a Justice Department investigation for selling unregistered securities as part of similar loan deals across the nation. The case was later converted to a Chapter 7 liquidation and the servicing rights for its loans were sold off.
Citron Investment Group filed a foreclosure lawsuit against HFAH in 2008 on behalf of the 243 loan investors. That lawsuit was dismissed in 2011 after the plaintiff failed to show up at a mediation hearing. Hayes said it's been extremely difficult to reach the individual loan investors and negotiate a deal with them.
Without the resources to pursue the project, HFAH hired Marcus & Millichap to market the property. It signed an agreement to sell it for $4.23 million to Revenue Properties, of Kennar, La. However, it couldn’t get the lender group to sign off.
HFAH filed a bankruptcy court motion to hold an auction for the property, with Revenue Properties as the stalking horse bidder with the offer of $4.23 million. Revenue Properties also agreed to lend $200,000 to the debtor for its operating expenses in the meantime.
“The property is a wasting asset and diminishing in value daily,” Hayes said in a statement in bankruptcy court. “HFAH as a corporate guarantor has since become insolvent and has no ability to secure the property from new claims for real estate taxes, municipal liens, fines and third party claims. In fact, the property has been declared a public nuisance by the City of West Palm Beach, Florida, but since no responsible party can take action to protect or improve the property, there is little prospect of it returning to productive us unless and until it can be sold.”