Borrowers for Nine Properties in North Carolina Implement Chapter 11 Reorganization Process

CHARLOTTE, N.C., March 9, 2012 /PRNewswire/ -- The borrowers for a group of nine properties who are represented by American Asset Corporation (AAC) have implemented the Chapter 11 reorganization process in the U.S. Bankruptcy Court in Raleigh, NC.  Their intent is to update existing loan documents to current market conditions in order to fulfill the original plans for the properties, which includes leasing the buildings, finalizing land sales and ultimately paying back the bank and other creditors. This is a decision made by the borrowers after years of trying to work with Bank of America to revise the existing loan documents. To date, negotiations have stalled with Bank of America and the borrowers are turning to the court system.

"The fact that we're using Chapter 11 reorganization is a product of the meltdown of the financial markets and the subsequent disarray in the banking system.  These properties have continued to perform well as we are leasing space and creating cashflow as originally planned. However Chapter 11 is the only way, in the absence of a consensual agreement with the bank, to be able to put the necessary new money in the property to finish the original leasing plans and seek conventional financing. The borrowers will put new money in the properties, as was part of the original commitment made by the bank to the borrowers that the bank no longer wants to provide," said Count Arco, CEO of American Asset Corporation.

Many borrowers have faced similar challenges in the Commercial Mortgage-Backed Securities (CMBS) environment. The policies that financial institutions have created, and that are further impacted through regulatory requirements, have hindered financial institutions from extending or restructuring existing loans.  This results in the borrowers having to overcome a declaration of default in order to achieve an amendment to an existing loan.    

The borrowers had to use their legal rights to protect the property and started litigation against Bank of America last year when the bank's internal directions changed and the bank informed the borrowers that they no longer wanted to work out loan extensions but instead wanted to liquidate the loans at a discount and as quickly as possible.  The bank hired CBRE to liquidate the loans at a discount and CBRE marketed the loans world-wide.

At the end of this extensive loan sale process, the bank had numerous offers but was not able to close a sale with any of the prospective buyers presented by CBRE. In the meantime, the borrowers have continued to operate the properties as planned and invest capital into the properties, and they will continue to do so. 

"We have been forced to use the legal system in order to resolve a loan amendment process.  We are confident that this portfolio of properties will continue to do well and that the loan amendment process will allow us to achieve what we've always intended, operate fiscally sound properties," said Arco.

Even though it is a small portion of the overall portfolio that AAC represents, these properties have always been intended to be held as part of the AAC portfolio long term.

SOURCE American Asset Corporation