Creative Use of Receiverships to Reposition and Resolve Problem Projects and Businesses
Published in the North Bay Business Journal's Legal & Accounting Resource Guide
Picture a quintessential broken late-2011 North Bay real estate project: A condominium complex where construction started in 2007, but has been long halted in mid-development. The real estate recession has cut expected unit sales prices. The developer is essentially out of business, and the individual completion guarantor is insolvent. The participating banks long ago halted construction loan draws. Contractors have filed mechanics liens for unpaid work. Entitlements are about to expire. The soil is contaminated with a diesel fuel spill, discovered during construction, which needs to be remediated.
With the glimmer of a real estate recovery on the horizon, everyone agrees the project is worth much more finished than not, but it seems impossible: The participating lenders won't all agree to advance new money, and none of them will advance any money with the developer still in charge. The guarantor won't consent to a loan modification without a release, and the contractors will only go forward with certainty of payment. With various litigation threatened, no one will do anything that might get them dragged into a lawsuit. (Open PDF to read full article.)