“It exposed a real problem that’s frankly unfair for borrowers who are in good faith wanting to finish a project, and builders who don’t,” said Joseph Pack of Pack Law in Miami.
A Miami attorney has helped a newly built, high-end storage facility in Naples get out of foreclosure and back on track after it was acquired in a multimillion-dollar deal.
The storage facility’s troubles began when a contractor allegedly walked off the job, a growing trend in South Florida as more projects increase.
Although the purchase price hasn’t been confirmed by the parties involved, Joseph Pack of Pack Law in Miami assisted Carl’s White Glove, a personal storage and wine vault company, in a loan restructuring.
The storage facility, located at 11201 Tamiami Trail, houses Carl’s Wine Vault, a wine storage facility that provides a safe space for wine collectors to keep their possessions.
Pack says the sale reflects growing demand for high-end storage as many wealthy new residents have migrated to South Florida.
Pack Law also effectuated a loan consolidation and loan sale to Fort Lauderdale-based Fuse Group Investment Companies, which provided the funds to hire a new contractor, finish construction and close the sale.
Last year, the three-story building that houses the wine vault was under construction when Gates Construction, the general contractor on the project, allegedly walked off the job. Pack says Gates still cannot be found. “Todd Gates is literally missing. No one can literally find the guy. It’s rumored that he’s in the Bahamas or Jamaica or something,” he said.
Gates Construction did not respond to a request for comment by deadline.
“With only a temporary certificate of occupancy, it was difficult to enter into transactions to sell the building and it was difficult to get financing,” Pack said. “Financing wasn’t readily available because when you have a building that doesn’t have a certificate of occupancy, you’ve got to be a creative lender.”
Pack claims the building’s first and second lien lenders “engaged in oppressive foreclosure actions, with the second liens allegedly intentionally ignoring a standstill agreement, and pressing on the gas at any cost, a Chapter 11 filing followed by a 363 Sale was all but inevitable.”
Other Borrowers Could ‘Find Themselves in This Mess’ Though there were some challenges along the way, the transaction turned out to be a good thing. But contractors walking off the job is an issue Pack says he’s seeing more often.
South Florida’s real estate boom has caused an increase in construction everywhere, and the challenges his client had is a cautionary tale for those who may be stuck between a rock and a hard place if a builder walks away.
“What do your loans provide for that? And is the relationship you have with your lender such that if that happens, it doesn’t mean you’re automatically losing the building to your lender or having to file for bankruptcy to have to save the project?” Pack said. “I think there are a lot of borrowers in South Florida that could find themselves in this mess, notwithstanding how readily available capital is and notwithstanding how high real estate values still are.”
After Carl’s White Glove was able to secure a certificate of occupancy and sold the building, Carl’s Wine Vault will have a long-term lease and be managed by building developer Rachel Keller.
“I have to commend Ms. Keller on this result. She kept her focus on what mattered, and shrewdly and quickly began to think like a seasoned debt investor,” Pack said. “I’ve seen aggressive lenders, but with a high-value property, and what appeared to be noneconomic motives by the second-lien lenders and oppressive default interest rates all around, these foreclosure actions took on a life unto themselves. We believed we found a basis for a very potent lender liability claim related to the second liens and were ready to litigate that to finality.” “I have to commend Ms. Keller on this result. She kept her focus on what mattered, and shrewdly and quickly began to think like a seasoned debt investor,” Pack said. “I’ve seen aggressive lenders, but with a high-value property, and what appeared to be noneconomic motives by the second-lien lenders and oppressive default interest rates all around, these foreclosure actions took on a life unto themselves. We believed we found a basis for a very potent lender liability claim related to the second liens and were ready to litigate that to finality.”
Whether builders walk off the job in good or bad faith, the end result for the owners is the same: they’re left holding the bag.
“And whether they have recourse or not is not solving the immediate problem where they could be in default of their loans, and it’s giving the opportunity for lenders to come in and foreclose on buildings that have a lot of value but just need to be finished,” Pack said.
It now costs more to refinance a loan and Pack says a lot of the economics of projects are changing. He says it’s getting more expensive to finish a project or even get loans.
“It exposed a real problem that’s, frankly, unfair for borrowers who are in good faith wanting to finish a project and builders who don’t,” he says.
Pack says it can’t be underscored enough that developers have good relations with their lenders, which also includes a lot of communication and transparency.
“There are a lot of lenders and borrowers that have a strained relationship. That’s fine, as long as the project is without risk,” Pack said. “Developers who are borrowing money, they need to be extremely judicious with their lenders, and lenders equally need to be extremely judicious on how they foreclose on their rights.”
Know Your Client’s Business For attorneys who may take on a similar case, Pack says to know the loan documents cold.
“Including what remedies are available under state law and, more importantly, what defenses are available under state law,” he said.
Instead of just analyzing the law and loan documents, Pack suggests helping clients exercise business judgment.
“They need general counsel because it’s not just a legal issue, it’s a business issue as well,” Pack said. “There are business ramifications, for example, slow-rolling certain payments or contemplating bankruptcy for developer’s larger organization. Knowing your client’s business is also incredibly important.”