A planned foreclosure auction that could have liquidated much of imprisoned developer Billy G. Jefferson Jr.’s rental properties was put on hold this week.
River City Renaissance and River City Renaissance III, two entities through which Jefferson owns a slew of Fan-area rental properties, filed for Chapter 11 bankruptcy protection late Wednesday before an auction was set to take place on the Richmond courthouse steps the next day.
The move will at least temporarily stave off an attempt by Jefferson’s lenders to foreclose on a pair of loans originally valued at a combined $36 million while attorneys push to sell the properties in a more standard market sale.
The properties total 441 units scattered through the Fan, Museum District and Carytown areas. They include several smaller apartment buildings throughout the Fan, as well as the roughly 150-unit River City Court complex near Carytown.
The pending auction had drawn interest from area real estate investors looking to get into one of the most in-demand rental markets in Richmond. The Jefferson properties are well-stocked with tenants. The occupancy rate was about 93 percent for May, according to property receiver CompassRock Real Estate, but occupancy fell off significantly in June according to statement filed in U.S. Bankruptcy Court.
River City Renaissance LC, the larger of the two entities to file for bankruptcy, lists between $10 million and $50 million in both assets and liabilities.
River City Renaissance III LC, which owns six of the 29 total parcels that would have been auctioned, lists between $1 million and $10 million in both assets and liabilities.
Loans to both of the firms were backed by the apartment properties and issued nearly 10 years ago. The first was to River City Renaissance for $30.35 million. The second was a $6.3 million note to River City Renaissance III. It’s unclear what is still owed on the debts.
Both entities list Jefferson, the city of Richmond, CompassRock Real Estate and Dominion among their unsecured creditors, according to the filings.
Washington, D.C.-based substitute trustee Pardo Drazin first advertised the scheduled auction in early July.
Attorneys on both sides of Jefferson’s criminal case filed a joint motion last week asking a federal judge to release $165,000 of Jefferson’s money to hire law firm Spotts Fain to steer the properties away from foreclosure.
Both sides agreed that the properties could fetch high prices through conventional market sales. That would potentially leave more money for Jefferson to pay down a $9.6 million restitution figure that is part of a plea agreement.
In an affidavit submitted to the bankruptcy court, a CBRE | Richmond real estate broker assessed the entire property portfolio at around $45 million, about $8.3 million more than the original principal loan amounts.
Spotts Fain attorneys Robert Chappell, Timothy Moore, Jennifer West, Neil McCullagh and James Donaldson are working on the bankruptcy.
On Thursday afternoon, attorneys handling the case filed motions that would allow CompassRock to continue managing the properties as a receiver for up to 30 days. A separate motion could allow money from rents at the properties to pay CompassRock.
The attorneys also sought to employ Development Specialists Inc. as a “liquidating representative” for River City Renaissance and River City Renaissance III.
In a separate filing, DSI Senior Vice President Joseph Luzinski said significant marketing efforts and market sales under the cover of Chapter 11 bankruptcy would reap the best prices for the properties.
The attorneys could ask the judge to allow the properties to be sold while the two Jefferson entities are still in Chapter 11.
Jefferson is currently awaiting sentencing on four federal felonies related to a historic tax credit scheme and a subsequent plot to flee the country under a false identity late last year. He’s set be sentenced in September and faces a maximum of 37 years.