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.