Las Vegas Investor’s Gamble Sets Precedent for Single-Asset Real Estate OwnersSeptember 7, 2011 – In The News
The recent strategy used by Whitton Corp., a Nevada real estate company, to reorganize under Chapter 11 bankruptcy protection may set the precedent for other debtors, developers owners or investors faced with financial difficulty. A U.S. bankruptcy court allowed Whitton to merge several single-asset operating companies, which limits each mortgage lender's ability to block the reorganization.
"A single-asset real estate case doesn't give the debtor the kind of breathing space that comes in a non-single-asset bankruptcy," said Hal Baume, who heads Whitton Corp.'s legal team with Brett Axelrod.
Those filing for bankruptcy under single-asset real estate must gain court approval of a reorganization plan or begin making payments on the loan by a 90-day deadline. Owners with multiple real estate assets are given more time to execute a reorganization plan and lenders are unable to block reorganization as long as one creditor agrees to a reorganization plan, despite other opposing lenders.
"And where each lender could have blocked the plan in single-asset real estate, all we needed was one of those lenders to vote to confirm plan," said Baume.
The usual court response is to look unfavorably upon such strategies, but Baum said one critical detail makes the Whitton case different: the various businesses of Whitton didn't transfer their assets, but merged them into a new entity and retained ownership of the loan collateral.