20 Bayard Goes Belly Up
The sponsors of the condo 20 Bayard Street have filed for Chapter 11, according to a story in the Real Deal. The development, which was the priciest of the three Karl Fischer Row buildings overlooking McCarren Park, first showed signs of being on shaky financial ground when about half of its units were offered as…
The sponsors of the condo 20 Bayard Street have filed for Chapter 11, according to a story in the Real Deal. The development, which was the priciest of the three Karl Fischer Row buildings overlooking McCarren Park, first showed signs of being on shaky financial ground when about half of its units were offered as rentals last winter. Sponsors North Development Group, which is led by Isaac Hager, owe upwards of $10 million to 50 different creditors, according to the bankruptcy filings. What will this mean for the people who bought there?
20 Bayard Condo Files for Chapter 11 [The Real Deal] GMAP
Photo by zachvs.
It’s immensely entertaining to read people who know nothing about the law spewing about Chapter 11.
First, it stops the lenders from foreclosing on the property. In other words “the bank” does not take over the property immediately after a filing.
Second, it stops the company (20 Bayard Views LLC) from having to service or repay its prepetition debt. With half the building in rental, there is a substantial income stream from which to pay common charges. There is no incentive to cut services because that would further depress the value of apartments the company owns.
Third, the company can now obtain debtor-in-possession financing, if it needs it, which would then be the first obligation (an “administrative claim”) of the company. The likely sources for DIP financing (again, if needed — the income from the rentals could support the current operations) are the prepetition lenders, who likewise have an incentive not to let their security decrease in value.
Fourth, Chapter 11 is about reorganization. The assets of the company likely will be sold to the highest bidder (which could even be the owners of the company), and the lenders would then take however many cents on the dollar it works out to. In my experience, banks don’t want to own and manage buildings; they want to sell them to real estate companies. The new ownersof the asset might either start selling at lower prices, or decide the income stream from the rentals is a good investment.
As for who is screwed besides the lenders (and the poor plumber who has $325k of unsecured debt — he gets paid only if the secured lenders get 100 cents on the dollar), the existing owners are screwed only if they were planning on flipping or are forced to sell because of external factors like job loss. If they bought intending to live there and can make their mortgage payments, they should be fine.
whoops–read that wrong. Thought he was saying that you have to cover the entirety of your purchase price. Sorry Minard. Carry on. Though I still think that is a bit of a heavy handed comment.
wasder – I think Minard is kind of saying the same thing….
This is how WSJ defines underwater in terms of real estate:
“owing more on a mortgage than the home is worth”
any unit that has a mortgage is just being rented from a bank anyway, if you think about it for half a second.
we’re all renters together.
except maybe bob marvin.
Minard–I think you are somewhat redefining underwater then.
Brokedeveloper – the owner of these units may not be “a bank” and even if it is “a bank”, the bank may relatively rapidly sell its interest to some RE operator. This is not Miami or vegas – there is a market for these units (as they are rented).
That being said – the issue isnt “is being in a condo 50% owned by a bank” – a dream; the issue is – COMPARED to what….a developer that is in foreclosure? or who is bankrupt in all but name????
There are no secrets here (i.e. this “event” is not going to have a major effect on the market, cause it was obvious to start) – if you are an owner in this building and you wanted to sell last week – you were in a development that couldnt sell all its units and went 50% rental (and rented). with the 50% owned by a developer who clearly must have gotten killed. And if you want to sell tomorrow – you are still in the same situation, only now at least you know that the owner of the 50% is going to force the bank to foreclose on him.
Either way you have a tough sell in a bad market, but it isnt really clear which way is worse.
to me underwater means that if you had to sell, you could not cover the outstanding part of the mortgage and the closing costs with the sale price. I think most people who have bough over the past four years fall in that catagory unless they put a larger than average amount down. in that case they are not underwater they are just in the minus column.
I have to agree that Minard’s statement about everyone who bought in the last few years is underwater is not defensible. I have been keeping a close eye on comps in my neck of the woods and while I am not selling I feel confident I could get about what I paid for my place now.