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Distressed Real Estate

Contacts

Caroline A. Harcourt
Partner, New York
T: +1.212.858.1529
Rachel B. Horsch
Partner, San Francisco
T: +1.415.983.1193
Patrick E. Fitzmaurice
Partner, New York
T: +1.212.858.1171
Joshua D. Morse
Partner, San Francisco
T: +1.415.983.1202
See All Professionals

Areas of Focus

Pillsbury’s Distressed Real Estate task force brings together practitioners from a number of core areas, including Real Estate, Insolvency and Restructuring, Litigation, Financial Services Regulation, Structured Finance, Tax, Insurance and Environmental law to draw on its members’ decades of experience in representing clients in distressed real estate situations.  This collaboration is also expressed in the series of talks the group has put on as part of its Swimming Lesson Series–Surviving and Navigating the Choppy Waters of Distressed Real Estate.

The group works together across disciplines to develop practical, efficient and effective business solutions—driven by cash flow and value propositions—for lenders, investors, owners, operators and others facing real estate related distress, insolvency and bankruptcy exposure.

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For example, when litigation or bankruptcy can be avoided our distressed real estate lawyers work together on:

  • Debt and equity restructurings, including loan modifications and workouts, and extension and forbearance agreements;
  • Distressed loan purchases, including purchases of whole mortgage loans and loan participations, and related capital markets (and diligence) issues;
  • Preferred equity investments (and mezzanine loans) in highly leveraged/distressed situations;
  • Formation of investment structures to acquire distressed assets, including regularly advising clients on the risks associated with purchasing distressed mortgage and subordinate/mezzanine debt; and
  • Negotiation of rescue and exit financing

When litigation or bankruptcy cannot be avoided, our real estate, insolvency, and litigation lawyers join forces to:

  • Handle loan enforcement and lien priority disputes, including judicial and non-judicial foreclosures and UCC foreclosures, deeds or assignments in lieu of foreclosure, receiverships and property recovery issues, and analysis of intercreditor agreements in complex debt stacks;
  • File writs of attachment, writs of possession and other pre-judgment remedies; defense of lender liability claims; execution, garnishment, judgment debtor examinations and other methods of judgment enforcement; collateral realization settlements and analysis of settlement strategies;
  • Represent owners that reorganize and rehabilitate real estate assets through bankruptcy;
  • Represent secured lenders (at all parts of the debt stack) looking to maximize their recoveries in bankruptcy proceedings by developing effective exit strategies, pressing adequate protection and “lift-stay” requests, and avoiding unfavorable “cramdowns;”
  • Assist in the confirmation of debtor-sponsored plans, creditor-sponsored plans and jointly-sponsored plans;
  • Represent sellers and buyers of real estate in “section 363” sales, including leasehold interests;
  • Represent landlords seeking to obtain full payment of “post-petition” and “pre-petition” rent (including via cure, setoff of deposits and by counseling on claims, including those subject to statutory caps); avoid being sued for preferential transfers and avoid other undue and harmful consequences (e.g., undesirable lease assignments)
  • Guide owners and prime contractors in the construction context through insolvencies, receiverships and the bankruptcies of their subcontractors, including substantial experience defending subcontractor claims;
  • Advise clients on the risks associated with purchasing distressed mortgage and subordinate/mezzanine debt and represent them when their borrowers land in bankruptcy; and
  • Address substantive consolidation, “true sale,” and equitable subordination issues, having both opined on and litigated these matters.

Our task force lawyers understand the real estate industry and are intimately familiar with underwriting and valuation principles. We team with other established professionals—including MAI appraisers, brokers, financial advisors and are well-versed in the Uniform Standards of Professional Appraisal Practice (USPAP). We work with leading real estate appraisers and other valuation experts to develop defensible positions on value and assess and challenge competing positions when necessary. We also partner with knowledgeable and experienced brokers and financial advisors to craft optimal processes, under the prevailing circumstances, for marketing real estate and related investments.

Representative Experience

Representing Lenders & Creditors

  • Represented lenders in the negotiation of numerous confidential forbearance and modification agreements as well as complex workouts.  These confidential matters involve mortgage and mezzanine loans (and interests in loans) secured by liens or pledges relative to hotels and resorts, retail properties, office buildings, mixed-use properties and multi-family projects.
  • Represented Artery Capital affiliates as subordinate secured creditor in a chapter 11 case that was pre-dated by many years of non-bankruptcy litigation. Teaming with knowledgeable valuation and brokerage professionals, we successfully confirmed a competing chapter 11 plan over the debtor’s objection that allowed for the fast-track sale of real estate in Washington, DC’s exclusive Georgetown neighborhood and yielded proceeds to pay creditors.
  • Represented (as special consultant) Angelo Gordon, the secured creditor of a 300-unit senior housing center in Las Vegas, Nevada, in the chapter 11 case of Carefree Willows, LLC. We advised on a strategy that ultimately led to confirmation of a plan and full payment of Angelo Gordon’s debt.   

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  • Representing Lenders & Creditors (continued)
    • Represented the Official Committee of Unsecured Creditors in the chapter 11 case of Columbia Hospital for Women, once a mission-critical health care facility in Washington, D.C. When the efforts to reorganize did not succeed and the hospital was forced to close, we negotiated payment in full for unsecured creditors plus interest from the date of the sale of the debtor’s real estate.
    • Represented the creditor in three related loans to a large entertainment establishment secured by its commercial real estate in California. The borrower was mired in litigation with an aggrieved former employee and business partner who asserted that the borrowers did not have authority to enter into a workout with the bank and threatened the bank with litigation if it went forward with restructuring the loan. We negotiated an agreement with the former partner to allow the loan to be restructured, collected in full from guarantors on one of the loans that was past due, and assisted in negotiating the terms of a restructured credit agreement to provide covenant relief with regard to the two remaining loans.
    • Represented Wells Fargo in complex financial arrangements with a corporate group that was the nation’s largest provider of date and ornamental palm trees. Initially, Pillsbury restructured existing loans secured by real estate in multiple states in coordination with another significant lender with shared or related collateral and subordination issues. After the companies filed for bankruptcy, Pillsbury negotiated a confirmed chapter 11 plan that accomplished a prompt disposition of all real estate collateral through the bankruptcy pursuant to a sales process designed and controlled by the secured lenders for their respective collateral with the final disposition accomplished through a court-appointed third party obtaining court orders protecting the parties. This allowed for expedited sales, avoiding the state foreclosure procedures in the states where the real estate was located and produced recoveries exceeding our client’s expectations.
    • Represented Prudential Insurance Company, the mortgage lender of an 8-story 180,000 square foot Class A office building in Vienna, Virginia, in the chapter 11 case of Three Flint Hill LP. We successfully confirmed the lender’s chapter 11 plan and defeated the debtor’s plan by making new law that designated the debtor’s business associate, who purchased claims in the case, as an insider.  The case ultimately settled with full payment to Prudential.
    • Represented Equitable Life Assurance Society as lender on a 135,000 square foot Class A office building in Dulles, Virginia in the chapter 11 of Parkview Executive Center Joint Venture. We implemented a strategy to purchase all unsecured claims, resulting in a consensual resolution and full cash payment to the lender.
    • Represented Chevy Chase Bank as secured creditor of 204 acres of to-be-developed real estate owned by Forstmann affiliate and chapter 11 debtor Westview South Associates, L.P. We obtained relief from the automatic stay to foreclose on the real estate.
    • Represented a group of mall owners and developers in preserving their rights under a designation rights sale motion that would have removed restrictive covenants on Service Merchandise stores as de facto anti-assignment provisions.
    • Represented an affiliate of Lehman Brothers as unsecured creditor of a failed, partially completed 22-story condominium project located off The Commons in Boston, MA, in proposing and confirming a plan of reorganization that transferred ownership and all development rights to Lehman over the objection of the debtor and the debtor’s principal, resulting in the successful completion of the project and market-price sale of all condominium units.
  • Representing Owners as Debtors
    • Represented borrowers in the negotiation of numerous confidential forbearance and modification agreements as well as complex workouts.  These confidential matters involve mortgage and mezzanine loans (and interests in loans) secured by liens or pledges relative to hotels and resorts, retail properties, office buildings, mixed-use properties and multi-family projects.  
    • Represented Oaktree Capital Management, LLC and certain of its affiliates in connection with the negotiation and implementation of a complex deed in lieu transaction handing over the Turtle Bay Resort (North Shore of Oahu) to a consortium of lenders owed in excess of $400 million (in order to resolve a judicial foreclosure action).
    • Represented a condominium’s board of directors as debtor in the bankruptcy of 219 separately owned residential units that were valueless until all titles were unified (thereby becoming insurable) via a section 363 sale process, implemented through a plan confirmed in 49 days. After confirmation, we developed and implemented a strategy that resulted in full payment to creditors and substantial distributions to unit owners.   
    • Represented debtors Specialty Hospitals, operators of acute care health care facilities in Washington, DC, in litigation over the value of real estate to obtain debtor-in-possession priming financing (defeating the pre-petition lender’s appraised value). The litigation was ultimately resolved consensually allowing the debtors to obtain critical financing and to implement a strategy that led to the sale of the facilities, restoring financial viability, saving hundreds of jobs, and continuing critical service to some of the District of Columbia’s most needy residents. 
    • Represented a 36-hole country club with large clubhouse and tennis facilities on over 260 acres in Houston, Texas. Successfully “crammed down” lender in a contested confirmation hearing and confirmed chapter 11 plan.
    • Represented owner and confirmed a successful reorganization and recapitalization of a multifamily apartment complex resulting in payment to creditors in full and return to investors.
    • Represented debtor Potomac Supply Corporation, a lumber manufacturing company with 17 acres of operations. We developed a strategy for restarting the business and obtaining access to cash collateral, which involved litigating and defeating the secured lender’s expert MAI appraiser, allowing for the sale of the business and saving over 100 jobs. 
    • Represented debtor Diamond Palace, owner of a hotel and casino resort in San Juan, Puerto Rico. We litigated valuation of the hotel and succeeded at getting access to cash collateral, which enabled the debtor to get to a sale of its assets.
    • Represented indoor theme park and movie theater complex in successfully restructuring negotiations with its creditors, including personal injury tort claimants.
    • Represented debtor Vox, the owner of substantial developable residential real estate, in its chapter 11 case. We implemented a strategy aimed at rejecting the undermarket purchase agreement with a developer, capping damages at out-of-pocket expenses, using the equity to pay creditors and allowing for a substantial dividend to the owner. 
    • Represented Artery affiliate Bay Limited Partnership, owner of an 11-story 276,000 square foot Class A office building in Bethesda, Maryland. Successfully confirmed the chapter 11 plan substantially reducing and restructuring secured indebtedness and paying trade creditors. 
  • Representing Players in Tiered Debt Structures (with mezzanine and other subordinated Debt)
    • Represented several clients in out-of-court negotiations and efforts to acquire mezzanine debt secured by equity in financially distressed real estate. In doing so, we advised on a variety of issues, including potential forfeiture resulting from the sponsor’s alleged criminal activities. 
    • Represented Federal Capital Partners (FCP) as subordinate secured creditor in a chapter 11 involving The Georgian Towers, an 891-unit multifamily residential project in Silver Spring, Maryland. We successfully confirmed a chapter 11 plan that auctioned and sold the property for $168 million, allowing FCP to recover its investment.
    • Represented an investment bank in the origination, and later restructuring, of $6.5 billion of mortgage and mezzanine loans (involving a consortium of lenders and multiple loan participants) with respect to hotels/casinos in various states. This representation entailed extensive work with regard to intercreditor and co-lender arrangements.
    • Represented an investment bank in restructuring $3.5 billion of bridge, mortgage and mezzanine loans on a portfolio of hundreds of retail shopping centers throughout the U.S.
    • Represented Morgan Stanley as mezzanine lender in the chapter 11 case of Bray & Gillespie, owners of dozens of hotels in Daytona Beach, Florida. Collaborating with experts in hotel appraisal and financial consulting, we successfully obtained relief from the automatic stay to foreclose on the equity interests serving as collateral, which paved the way for a consensual resolution of the case for Morgan Stanley. 
    • Represented Capstead Mortgage Corp., as subordinate mortgage lender, in connection with Hotel Equity Fund V, LLC, owner of the Four Seasons Nevis. Capstead coordinated an involuntary chapter 11 filing that led to a consensual maximum recovery.  
    • Represented Shorenstein in the acquisition of several mezzanine debt pieces and the foreclosure of one of them during the last recession.
  • Representing Landlord, Tenant & Other Leasing Related Matters
    • Represented a commercial landlord in connection with tenant bankruptcy and lease default with respect to a San Diego, CA office lease. Work included enforcement of lease remedies, letter of credit recovery analysis, and bankruptcy representation, including restructuring partially rejected and partially assumed lease obligations.
    • Represented Quadrangle Development Corporation, the landlord of key retail space at the Marriott Marquis Hotel Convention Center in Washington, DC, in the chapter 11 of celebrity chef Mike Isabella. We developed and implemented a strategy for obtaining possession of the space and removing all equipment within 90 days of the bankruptcy filing. 
    • Represented Lab School in the chapter 11 of Rock Creek International School. We developed and implemented a plan to acquire (via assumption and assignment over the landlord’s objection and competing commercial bidders) the debtor’s lease with the D.C. government of prime real estate serving as an elementary school. 
    • Represented Western Aircraft, Inc., as landlord, in the bankruptcy case of Silver State Helicopters, LLC, as tenant. We successfully obtained the return of the leased space and an administrative claim for unpaid rent. 
    • Represented Mills Corporation as landlord in the chapter 11 of tenant Jillians/Dave & Busters. We successfully defeated the estate’s refusal to pay Mills under a pre-rejection agreement with the debtor and obtained full payment as an administrative expense.  
    • Represented Crescent Real Estate as landlord under a master lease of 90 psychiatric facilities to chapter 11 debtor Charter Behavioral Health. We successfully defeated the creditors’ committee’s attempt to break-up the lease by facility, enabling Crescent to negotiate with the debtor strike prices at which the facilities and operations would be sold/leased to buyers.  
    • Represented tenants in subsidized housing in steering bankruptcy auction for a debtor’s property to a non-profit acquiror that promised a 50-year dedication (easement) to low-income housing plus needed renovations by contributing claims for post-petition housing code violations and other claims against the debtor, described by a local paper as the worst slumlord in Boston, to the non-profit’s bid for the property.
  • Representing Clients in Acquisition and Disposition of Equity in Distressed Real Estate 
    • Represented a national bank in its acquisition one of the largest growers and distributors of live plants in the country.  After seeking to restructure its operations for over a year, the company sought to find new financing or a purchaser for its business. The company pursued a Section 363 sale in the bankruptcy court, which resulted in the bank using its outstanding debt plus cash to acquire the operating business after a three-day auction.
    • Represented Crescent Real Estate in the out-of-court resolution of the financially stressed Tahoe Club. We developed and implemented a process that allowed the owners and users of the Club to acquire it, thereby maintaining its viability, preserving jobs, and avoiding potential WARN Act liabilities. 
    • Represented a nonprofit in sale of 112-acre campus of a 154-year old college forced to close in the face of disputes with the U.S. Department of Education, the Texas Attorney General and traditional bank lenders. Concluded a multi-party auction and confirmed a chapter 11 plan to distribute proceeds of litigation and the sale to beneficial interest holders.
    • Represented debtor Capitol Hill Group as the owner of prime real estate in Washington, DC, that was subject to an undermarket contract with a developer. After efforts to negotiate a more balanced purchase price failed, we successfully rejected the sale agreement in bankruptcy and limited the buyer’s damages to out-of-pocket expenses, rather than the difference between market value and the contract purchase price, enabling creditors to be paid in full and the owner’s equity in the property.  
    • Represented JBG/Georgetown Park LLC in the case of Capmark Financial Group Inc. We developed and implemented a strategy with a co-investor to bid on ultimate ownership of the Georgetown Mall in Washington, DC. 
  • Representing Clients in Avoidance Actions & Equitable Subordination Representations 
    • Represented Crescent Real Estate as defendant in an adversary proceeding filed by the trustee of East West Resort Development, LLC, involving a residential development at Lake Tahoe. After extensive litigation and mediation, we negotiated a resolution of the trustee’s $50 million claim for effectively “nuisance value.” 
    • Represented the owner of office buildings in Texas, Louisiana, and Ohio in multinational insolvency litigation in the U.S., Australia, and Hong Kong in dispute with affiliate of Japanese bank and chapter 7 trustee over fraudulent transfers alleged in excess of $20 million.
    • Represented a real estate developer in suit brought by chapter 7 trustee who alleged over $20 million in fraudulent transfers and breach of duty based on development operations and sales. We developed and implemented a strategy and settled for a small fraction of the demand. 
    • Represented trustee as creditor in the bankruptcy of Hess Farm Limited Partnership. Successfully prosecuted an equitable subordination claim that resulted in the avoidance of senior debt on real estate owned by the estate and in substantial distributions to creditors. 
  • Representing in Distressed Construction Scenarios
    • Represented Clark Construction Group in the federal receivership case of ISI Detention Contracting Group, involving the subcontract construction work done by ISI at the East County Detention Center in Riverside County, California. We successfully implemented a strategy that avoided litigation in El Paso, Texas, and enforced an agreement to arbitrate in Riverside, California. 
    • Represented a defense contractor subtenant in connection with receivership of ground leased industrial property in San Leandro, CA. Work included litigation representation regarding determination of sublease obligations, recovery of unfunded tenant improvement funds, and negotiation of settlement agreement with court-appointed receiver, secured lenders and sublandlord.
    • Represented Ballpark Hotel, LLC, owner of the Resident Inn Hotel near the Nationals Baseball Park in Washington, DC, in the bankruptcy of The Kane Company, responsible for providing construction-related services to the owner. We successfully negotiated the release of furnishings held by Kane that the client needed to timely furnish and open the hotel.  
    • Represented a Washington-based construction company in out-of-court process aimed at maintaining owner cash flow and surety support in order to timely complete key projects, including a historical school in Georgetown. We successfully guided the client through the out-of-court process and delivered the projects on time. 
    • Represented Clark Construction in Truland Service Corporation’s bankruptcy case, where the debtor served as subcontractor to Clark on important projects, including City Center and George Washington University Science and Engineering Complex. We successfully developed and implemented a strategy to replace the debtor as subcontractor and obtain Clark-owned materials in the debtor’s possession needed to complete the projects. 
    • Represented Saul Holdings Limited Partnership, as project owner, in the bankruptcy case of prime contractor The Warren-Group, Inc., where the debtor had failed to pay subcontractors, who in turn filed mechanics liens against the property. We successfully negotiated a court-approved settlement that provided for direct payment to the subcontractors and discharge of their liens, payment of Saul’s legal fees and costs, and payment of the residual due under the prime contract to the estate. 
    • Represented Cafritz Company in the bankruptcy of commercial real estate construction subcontractor Falke, Inc., defending cost-overrun claims. We successfully defended the claim and settled for effectively “nuisance value.”

Practice Area Highlights

  • Pillsbury’s real estate team and lawyers are recognized by Chambers USA, with clients saying we offer “[t]op-flight client service,” “deep commercial awareness,” “quality of work” and “timeliness of turnaround.”
  • Pillsbury is recognized by U.S. News – Best Law Firms and, according to The Legal 500 U.S., clients say our real estate practice and lawyers are “technically excellent,” “efficient, responsive and knowledgeable.”
  • Pillsbury was ranked among the Top-10 “Leading Real Estate Law Firms” by Commercial Property Executive, a publication that covers the commercial real estate industry’s key trends, issues and concerns.

Resources

Video

Swimming Lessons–Surviving and Navigating the Choppy Waters of Distressed Real Estate

Blog

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INSOLVENCY ISSUES, REAL ESTATE & COVID-19

Pillsbury insights on insolvency-related solutions, obstacles and precedents.

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