Real Estate Bankruptcies in the 3rd Quarter 2017

In the third quarter of 2017 there were 454 real estate bankruptcies (i.e. bankruptcies where the primary asset was real estate). These bankruptcies include cases where the debtor indicated on the petition that the case’s Nature of Business was a Single Asset Real Estate as well as cases marked as Other or as Health Care where the company’s primary asset was real estate (such as a  nursing homes, hotels, etc.) The count was down from 614 in the second quarter and 581 in the same period in 2016.

We took a closer look at real estate bankruptcies where the debtor indicated that the estate had more than $1,000,000 in assets. For the third quarter, we found 132 larger cases (29% of the total). This is down from 164 in the second quarter and 214 for the same period in 2016.

The largest property categories for real estate bankruptcies in the third quarter were:

  1. Offices properties — 25
  2. Undeveloped Land – 23
  3. Single Family Residences- 17

Bankruptcies involving land are fairly commonplace since developing a property is risky and carrying a non-income producing can be costly.  The largest bankruptcy during the period was a land development in Hawaii valued at over $100 million.  What was interesting was the number of single family residences in bankruptcy.  Most of these appeared to be expensive homes that where the debtor was not occupying the property.

During the period there was also one senior housing facility/nursing home , one hospital, and one church.

California (22) and New York (16) were the most active states by far.

Among the more interesting real estate bankruptcies that were filed in the third quarter include:

If you are looking for opportunities in bankruptcy, contact us.  We can help.

Bankruptcy Duration- Results for 3rd Qtr. 2017

How long does a bankruptcy take? Even a cursory review of bankruptcy filings will show you that the duration for each bankruptcy case is unique.  Each has its own unique set of facts, circumstances, creditors, debtors, and strategies that makes predictions about the timing of events difficult.  Federal rules mandating specific timelines for some events helps give creditors more rights as a case ages but these rules do not by themselves guarantee a specific duration.

To answer this question about bankruptcy duration, we decided to take hard look at activity in the third quarter of 2017 to what if anything could be learned about the duration of bankruptcy cases.  We also compared these results to the prior quarter to see if any trends were apparent.  We also decided to focus only on the duration of chapter 11 bankruptcies (if anyone wants to know about other chapters, contact us.)

Putting this information together is not easy.  There are several companies that will inform you of the names and dates for companies that have filed bankruptcy, but trying to figure out when something happens in a case (like the confirmation of a bankruptcy plan) is a harder problem.  (Lucky for us, our sister service excels at searching for docket events.)

Bankruptcy Plan Confirmed- Duration in the Third Quarter

Based on the number of plans that were confirmed in the third quarter of 2017, we found that the median duration of a chapter 11 bankruptcy case (that is from the filing date to the date a plan is confirmed) was 352 days.  (This is the median result which means that half of the cases took more time that 352 days and half the cases took less than 352 days.)
The third quarter result is up 69 days over the median in the second quarter of 283 days. The fastest plan confirmation was only 36 days for Crossroads Systems, Inc. in the Western District of Texas; the longest time for plan confirmation was 956 days for NW Valley Holdings, Inc. in Nevada.

The total number of plan confirmations was down in the third quarter compared to the second quarter. The Central District of California was the busiest court confirming 27 plans followed by the Eastern District of North Carolina with 18 plans confirmed. Meanwhile Delaware, the Middle District of Florida and the Eastern District of North Carolina tied as the most active for corporate bankruptcy confirmation, each with 11 plan confirmations. Average Duration varied in the courts from 177 to 840 days with a median average of 362 days.

The data is based on plans confirmations that occurred in the third quarter. It does not consider cases that are older that have not yet had a plan confirmed. We also chose to look at the median rather than the average because there are cases that took significantly longer than the median which skewed the average such that it was higher than the majority of the cases in the dataset.

Bankruptcy Resolution other than by Plan- Average Duration

Not all chapter 11 bankruptcies are resolved through the confirmation of a plan. Other alternatives include being converted to another chapter (typically a chapter 7 which implies a liquidation) or dismissal. In the third quarter, we found that the median duration for a chapter 11 case that was concluded for some reason other than a plan confirmation was 283 days. This is up 6 days from the second quarter.  The number of days ranged from a high of 4,382 for R.E. Service Co., Inc. in the Eastern District of California to a low of 1 days for Eternal Prosperity that was dimissed the next day in Maryland. 

These average were based on activity recorded during the subject period. What is not included in the average are filed cases where no resolution has been reached.

US Economy Stable while Healthcare Distress Increases

The Polsinelli|TrBK Distress Indices for the 3rd quarter of 2017 were released today. Indices suggest that the overall economy and real estate markets remain stable at historically low levels of distress, both indices were little changed from the second quarter and both remain significantly lower than the 2010 index year. The Chapter 11 Distress Research Index was 42.74 for the third quarter of 2017, an increase of nearly 2 points over the second quarter and just over 57 point below the number reached is 2010. The index is less than 5 points above the all time low recorded in the second quarter of 2015. The Real Estate Distress Research Index was 25.16 for the third quarter of 2017. This is approximately the same as the last quarter and nearly 75 points below the number reached in 2010.

At the same time, the Healthcare Index notched another record of 223.33 points in the third quarter. This is the highest level ever for the index with a gain of approximately 15 points over the prior quarter and 123 points over the level recorded in 2010. Nearly twice as many healthcare bankruptcies were filed in the third quarter of 2017 as compared with the same time period in 2016.

The Polsinelli|TrBK Distress Indices are research indices based on Chapter 11 bankruptcy filing data. The indices are contrarian measures of economic performance, so that a low index value is likely to occur in a strong economy, and a higher index value is likely to occur when financial distress is escalating. Thus, the indices are one indicator intended to suggest potential health or trouble in the economy. The indices track the increase or decrease in comparative Chapter 11 filings for prior quarters and years. The indices provide economic information that may not be reflected by the broader stock market averages, because the indices include both public and private company information.

Finding Real Estate Investments in Bankruptcy

We recently published a research report in partnership with the law firm of Polsinelli. The report analyzed the outcomes of bankruptcy cases involving real estate. More specifically, the report covered cases with more than $1 million in assets that were filed as Single Asset Real Estate bankruptcies in 2015. (One of the reasons that the cases are not more current is that the report was looking at how the cases were concluded which could be as long as a year after filing.) A free copy of the report is available at

The report presents the various outcomes that came about in the cases and the average time involved to achieve the outcome. According Jerry Switzer, one of the report’s authors, one of the more interesting conclusions from the analysis is that “in the majority of cases end of with the sale of the property in one way or another”.

Below is a webinar by the Polsinelli firm discussing both this report and the distress indices:

(A larger view of the presentation can be found here.)

More NYC Taxi Bankruptcies- The Uber Effect?

Yesterday, thirty-six bankruptcies were filed that involved New York City taxis.  (The cases are being jointly administered under two cases Brownie Taxi, LLC and Wrestler Taxi, LLC).  All of the companies are managed by Evgeny Freidman.  These filings are only the latest taxis serving New York that have filed for bankruptcy.  In the past few years there have been more than 100 bankruptcies involving taxi companies.

New York City, like most major US cities, tightly controls the number of cars allowed to operate as taxis.  According to Wikipedia, in 2016 the number was 13,587.  This number is controlled by the city by issuing “medallions” which have to be affixed to the car.  The medallions are transferable which has resulted in an active secondary market.  For most of the twentieth century, medallions were viewed as a valuable commodity.  Prices increased year over year and there was a group of commercial banks and specialty lenders that would advance loans that were collateralized by the medallions.  As recently at 2014, medallions were trading for more than $1,000,000 with fleet medallions trading for as much as $1,300,000.

Now all that has changed.  The New York Post reported in April that a single medallion traded for as low as $241,000.  As many as 46 medallions are being auctioned off in September as part of a bankruptcy sale (see auction site).  The collapse in pricing is being blamed on the rise of ride sharing services such as Uber and Lyft whose drivers are not required to have a medallion.

The collapse of the medallion market mirrors that of the housing crisis.  Individuals that borrowed against their medallions now find that they owe significantly more than their medallion is worth, companies are struggling to refinance their debt, and  credit unions and other financial institutions who have portfolio exposure are suffering.  One creditors that has been hit the hardest is Medallion Financial Corp. (Nasdaq: MFIN).  Once a darling, the company is now trading at only 3.18 times its trailing twelve months earnings.

Here are a few recent articles:

Update to the Polsinelli/TrBk Distress Indices

The latest results for the Polsinelli/TrBk Distress Indices were published on August 15th. covering the second quarter of 2017.  The indices continue to show a reduction in the level of distress in the economy in general, both the general index and the specialty real estate index were down.  At the same time the specialty index for healthcare reached an all time high, suggesting that healthcare contrarily continues to struggle.

A copy of the report can be obtained at:

Developing Real Estate by Selling Green Cards

One of the recurring themes for this blog is going to be that bankruptcy filings can be a rich source of information about businesses, how they are conducted and financed.

The largest single case real estate case that filed in the second quarter of 2017 was AINA LE’A, Inc.  The case involved multiple parcels of development land on the western side of the island of Hawaii totaling more than 1,050 acres.  The company has been working for the past eight years on a development plan for the properties which involved significant litigation with the Hawaii State Land Use Commission, neighbors, and the County of Hawaii.

In the debtor’s Motion to Approve Debtor in Possession Financing (copy available here), the company outlines a complicated financing structure including more than 500 shareholders, significant seller financing, and various construction and working capital loans.  This is not particularly surprising.  Any large development project is going to have a complicated structure especially one that has been delayed for a long time.

What did catch our eye was that much of the equity in the project is derived from the sale of more than $44 million “Undivided Land Fractions” to investors “primarily in Asia and Australia” and a $34 million term loan from a group called Whales Point Fund that is “to be funded by an EB-5 investor program.” The DIP motion did not provide any information about the how the EB-5 program works and we could not find any information online about the provider of the loan, Whales Point Fund.  We suspect that somehow the ULF would be the entry point to the process.

While EB-5s are well known (there is even a website and a magazine dedicated to the program which provides a helpful explanation of the process), we were surprised to see the scale of the program and its sophistication.