Bankruptcy:

Commercial Real Estate Developer

FILING REQUIRED
DUE TO TAX RISK;
CASE DISMISSED

A successful commercial real estate developer in northern CA elected to manage and report on his properties and other investments under his individual IRS Form 1040, to take advantage of the various offsetting options to minimize his taxable income. He used Special Purpose Entities to manage some 26 investment properties, providing development, construction and property management services. Regrettably, the financing of the portfolio was heavily concentrated with commitment expiration and/or renewal dates in 2009, the year during which the Great Recession was most widely felt. His former Chief Financial Officer of many years had managed his affairs with an extremely small and very limited accounting staff, without audits or financial consolidations and on a cash basis.

When it became clear that the developer may be not able to hold onto his assets, he consulted bankruptcy counsel who, in turn, recommended that he retain a financial advisor. We partnered with one of Aspen’s Affiliates who assumed primary responsibility for dealing with the lenders and other investors. We assumed responsibility for working with the new Chief Financial Officer and his staff to provide reliable and consistent financial, investment, property and other information to the Court and persons eligible to receive it.

We created a matrix to trace projects, entities, lenders and owners, from the dirt level to the entrepreneur-developer tax payer. We worked with others on the team to develop various resolution scenarios, one of which included his phantom tax exposures, which were significant. Ultimately, the developer made the decision to file for the protection of Chapter 11. We worked closely with the staff and attorneys to complete the various reports and schedules required by the U. S. Bankruptcy Court and the U. S. Trustee’s Office, as well as creditors and others. A Plan of Reorganization was developed and approved by the Court. The personal bankruptcy was dismissed.