For New York residential real estate developers, obtaining financing on favorable terms is essential. Once financing is obtained, staying current on the loan payments is also critical — a default can put the project in jeopardy of foreclosure. Recently the developer of a luxury condo tower on East 58th Street narrowly avoided foreclosure, but the survival of the project remains in question.
The developer, Bauhouse Group, acquired the site with the proceeds of a $147 million loan from Gamma Real Estate. When the loan went into default, Gamma commenced foreclosure proceedings. A foreclosure sale was scheduled for Feb. 29. When Bauhouse was unsuccessful in obtaining an injunction to stop the sale, the entity that took out the loan filed for Chapter 11 bankruptcy protection.
A bankruptcy filing triggers an automatic stay which stops all action by creditors against the debtor, including foreclosure proceedings. A creditor has the right to ask the bankruptcy court to lift the stay, however, and if Gamma brings such a motion and is successful, the foreclosure may go ahead. In the meantime, however, Bauhouse has bought itself some time to potentially restructure and pay off the loan.
If Bauhouse can avoid foreclosure the project has the potential for significant profit down the road. According to Bauhouse, the property’s value greatly exceeds the loan amount. The property has been appraised at almost $270 million in its current condition, or $1 billion if the condo tower is built.
When a land development project runs into financial difficulties there are many options that may be available. These could include negotiating solutions such as loan workouts in order to prevent foreclosure and keep a project alive. Therefore, parties to real estate transactions need to know their legal rights.
Source: therealdeal.com, “Bankruptcy filing at 3 Sutton halts foreclosure sale – for now,” Rey Mashayekhi, Feb. 29, 2016