(From July 6)
The master developers chosen by the city of Joplin to handle an $800 million project involving the area of the city hit by the May 22, 2011, tornado, filed for bankruptcy January 1 and are more than six million dollars in debt, according to court documents.
Wallace-Bajjali, the firm officially hired April 2 by the City of Joplin, is not the name on the bankruptcy court filing, but River Square Center Partners, the company that filed for bankruptcy, shares the same address and the bankruptcy petition was signed by Costa Bajjali.
The River Square Center complex, which is operated by Wallace-Bajjali Development Partners, filed for the Chapter 11 bankruptcy after defaulting on a $6,527,321.10 debt to Wells Fargo Bank, according to the court documents.
The events leading to the bankruptcy were described in court documents:
The Debtor is the owner of a three-story 92,874-square-foot former warehouse building located at 215 2nd Street & 217 Mary Avenue in Waco, Texas, that has been converted to retail, restaurant, and office space and is currently considered a focal point for night life in downtown Waco.
The project is 93.0% leased to 17 tenants and has adequate cash flow to service principal, interest, taxes, and insurance on an on-going basis.
The building was purchased by the Debtor in 2007 and renovated shortly thereafter. Despite what appeared to be a good faith transaction, the seller of the Property used his relationships with existing tenants to lure them into another building nearby that offered below market rates due to redevelopment incentives provided by the City of Waco. This resulted in tenant rollover of of over 50% within a 24-month period and lowered overall rents generally - the majority of re-tenanting income fell into 2010 and 2011.
Since the Debtor did not have adequate funds to cover the unexpected releasing costs, the principals covered the majority of these costs out-of-pocket. Bylate 2011, however, the cumulative effect of the drain caused the Debtor to be late on a couple of payments which resulted in the assessment of default interest and late fees. Even though the Debtor subsequently made payments in full and on time, LNR Partners (as special servicer for the Lender) applied the payments to default interest and late fees which left the loan constantly in default and subject to ever increasing late charges.
In late 2012, significant negotiations with the special servicer of the Secured Debt were had in order to resolve the outstanding defaults. The Debtor believed that a financial agreement had been reached, however thespecial servicer instead posted the Property for foreclosure for December 2012.
In order to preserve the value of the Property, the Debtor transfered approximately $290,000.00 toward payment of the Debt. The December foreclosure was passed with this payment, however the Property was once again posted for a January 2013 foreclosure. The Debtor did not have the funds to again meet the financial demands of the special servicer and this Chapter 11 was filed in an attempt to preserve the equity in the Property and to address all the Debtor's financial obligations.
The next hearing in the case is scheduled for July 22 in Houston.
(More to come)