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Real Estate Insolvency & Reorganization

Contacts

Patrick J. Potter
Partner, Washington, DC
T: +1.202.663.8928
Dania Slim
Partner, Palm Beach
T: +1.561.232.3314
Patrick E. Fitzmaurice
Partner, New York
T: +1.212.858.1171
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Areas of Focus

Pillsbury’s Insolvency lawyers develop practical, efficient and effective business solutions—driven by cash flow and value propositions—for debtors or creditors facing real estate related insolvency and bankruptcy exposure.

Our Insolvency and Reorganization team develops and implements innovative solutions to perplexing problems that prevent real estate from realizing its full potential. Our insolvency lawyers understand the real estate industry and are intimately familiar with underwriting and valuation principles. We have decades of experience working with clients who find themselves on one side or the other of distressed real estate transactions.

We team with other established professionals—including MAI appraisers, brokers, financial advisors and colleagues from Pillsbury's leading real estate and construction practices—to deliver meaningful results for our clients. Well-versed in the Uniform Standards of Professional Appraisal Practice (USPAP), we work with leading real estate appraisers 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.

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Our real estate insolvency and reorganization experience is vast. We represent owners that reorganize and rehabilitate real estate assets through bankruptcy, as well as secured lenders looking to maximize their recoveries in loan workouts and in bankruptcy proceedings by developing effective exit strategies, pressing adequate protection and “lift-stay” requests, and avoiding unfavorable “cramdowns.”  We confirm debtor-sponsored plans, creditor-sponsored plans and jointly-sponsored plans.  We represent sellers and buyers of real estate in “section 363” sales, including leasehold interests.  We 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).  In the construction context, we guide owners and prime contractors through insolvencies, receiverships and the bankruptcies of their subcontractors, and have substantial experience defending subcontractor claims.  We regularly advise clients on the risks associated with purchasing distressed mortgage and subordinate/mezzanine debt, and represent them when their borrowers land in bankruptcy.

We also have one of the most knowledgeable practices in the areas of substantive consolidation, “true sale,” and equitable subordination, having both opined on and litigated these issues.  Members of our section are regularly sought out to join other leading experts and bankruptcy judges in presenting on current and cutting-edge real estate insolvency and restructuring topics.

Representative Experience

  • Real Estate Based Reorganizations Involving Lenders & Creditors
    • Represent 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, D.C.’s exclusive Georgetown neighborhood and yielded proceeds to pay creditors. 
    • Represent (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.   
    • Represent 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.  
    • Represent 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. 
    • Represent 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. 
    • Represent 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. 
    • Represent 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.
    • Represent 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.
  • Real Estate Based Reorganizations Involving Debtors & Owners
    • Represent 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.   
    • Represent debtors Specialty Hospitals, operators of acute care health care facilities in Washington, D.C., 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. 
    • Represent 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.
    • Represent owner and confirmed a successful reorganization and recapitalization of a multi-family apartment complex resulting in payment to creditors in full and return to investors.
    • Represent 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. 
    • Represent 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. 
    • Represent indoor theme park and movie theater complex in successfully restructuring negotiations with its creditors, including personal injury tort claimants.
    • Represent 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. 
    • Represent 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. 
  • Mezzanine & Subordinated Debt Structures
    • Represent 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. 
    • Represent Federal Capital Partners (FCP) as subordinate secured creditor in a chapter 11 involving The Georgian Towers, an 891-unit multi-family 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
    • Represent 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. 
    • Represent 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.  
  • Landlord, Tenant & Other Leasing Related Representations
    • Represent Quadrangle Development Corporation, the landlord of key retail space at the Marriott Marquis Hotel Convention Center in Washington, D.C., 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. 
    • Represent 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. 
    • Represent 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. 
    • Represent 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.  
    • Represent 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.  
  • Real Estate Sale & Purchase Issues
    • Represent 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.
    • Represent 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.
    • Represent 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. 
    • Represent 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.
    • Represent debtor Capitol Hill Group as the owner of prime real estate in Washington, D.C. 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.   
    • Represent 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, D.C. 
  • Avoidance Actions & Equitable Subordination Representations
    • Represent 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.” 
    • Represent 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.
    • Represent 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. 
    • Represent 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. 
  • Construction Bankruptcies & Workouts
    • Represent 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. 
    • Represent Ballpark Hotel, LLC, owner of the Resident Inn Hotel near the Nationals Baseball Park in Washington, D.C., 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.  
    • Represent 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. 
    • Represent 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. 
    • Represent 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. 
    • Represent 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 is “Highly Commended” by Financial Times for legal innovation in our out-of-court work.
  • Best Lawyers recognizes our Bankruptcy and Creditor/Debtor practice as among the top in the nation and U.S. News & World Report reports top-tier national recognition to Pillsbury for bankruptcy litigation.
  • Lawdragon has recognized several of our partners on their annual lists of the 500 Leading Global Restructuring & Insolvency Lawyers and 500 Leading U.S. Bankruptcy & Restructuring Lawyers.

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  • Chambers USA recognizes individual Bankruptcy/Restructuring partners throughout our various offices.
  • Law360 recognized a Bankruptcy/Restructuring counsel as one of five national “Rising Stars” under 40 (2019).
  • Multiple “Deal of the Year” honors and other accolades from publications such as the Financial Times, M&A Advisor, Global M&A Network, Turnaround Management Association, International Financial Law Review and Latin Lawyer.

Awards

2022 Lawdragon 500 Guide

Three Pillsbury partners named to the 2022 Lawdragon U.S. Bankruptcy & Restructuring Lawyers guide

2022 U.S. News—Best Lawyers Best Law Firms

96 Tier 1 practice rankings in the U.S. News—Best Lawyers 2022 Best Law Firms survey

2022 Latin Lawyer Deal of the Year - Restructuring

Counsel for multiple creditors in the Chapter 11 restructuring of Avianca Holdings, S.A.

Resources

Insolvency Issues, Real Estate & COVID-19

Pillsbury insights on insolvency-related solutions, obstacles and precedents

Video Series

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

Case Study

(VCLF) Prevailing at Trial Against a Determined Plaintiff

Case Study

Bankruptcy as a Civic Service

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