Bank's takeover of Jefferson real estate delayed

The approval of the sale of Billy Jefferson's apartment portfolio has been delayed. Photo by Katie Demeria.

The approval of the sale of Billy Jefferson’s apartment portfolio has been delayed. Photo by Katie Demeria.

The winning bidder of a highly anticipated local real estate auction held last week will have to wait a little longer to take control of the potentially lucrative portfolio of 440 Fan and Museum District apartments.

At a hearing held Tuesday, a federal bankruptcy postponed the approval of the sale of 29 apartment buildings owned by convicted Richmond landlord Billy G. Jefferson Jr. to U.S. Bank and an affiliate.

U.S. Bank made the highest bids for Jefferson’s River City Renaissance and River City Renaissance III real estate portfolios through special servicer CWCapital Asset Management at a Dec. 18 bankruptcy auction. The two bids totaled $36.7 million, but the auction didn’t turn out as some in attendance would have liked.

In addition to being the winning bidder, U.S. Bank is also the largest creditor of the two bankrupt River City Renaissance entities as the holder of $36 million in loans backed by the apartment properties.

So despite plenty of build-up and a complicated bidding process, the auction ended with the properties likely going back to the noteholder and leaving up in the air, for now, exactly how much money might actually change hands.

Judge Keith Phillips rescheduled the hearing to approve the sale until Jan. 6, after a request from Robert Chappell of Spotts Fain, who is representing River City Renaissance.

Billy Jefferson's apartment empire has received its first auction bids. Photo by Evelyn Rupert.

Billy Jefferson’s apartment portfolio includes 440 units, mostly in the Fan and Museum District. Photo by Evelyn Rupert.

At yesterday’s hearing, Chappell told Phillips that the payout of any of the auction’s potential proceeds “is subject to dispute.”

Bankruptcy court documents show that there was approximately $33.5 million in undisputed debt for both River City Renaissance entities. The difference in the prevailing bid and the undisputed portion of debt will go to River City Renaissance in the form of a lien equaling a little over $3 million.

The River City Renaissance entities filed for Chapter 11 bankruptcy in July as Jefferson was going through his criminal proceedings. The auction was ordered by the court to generate proceeds for the creditors.

It was previously disclosed that any leftover funds after paying back the lender could be used to pay down Jefferson’s restitution for his tax credit fraud conviction.

With the noteholder as the winning bidder, the auction’s result is characterized as a credit bid. That often means that very little money will change hands despite the large dollar amount that was bid and recorded. The amount bid by the lender in this type of situation is typically more of a formality that simply leads to the lender reclaiming its collateral.

Chappell told judge Phillips that there were some errors in calculations related to the credit bid that needed to be clarified before the court could move forward.

Chappell declined to comment immediately after the hearing and did not return requests for comment later in the day.

It’s unclear what exactly U.S. Bank and CWCapital have planned for the apartments, which total 405,000 square feet around Richmond.

CWCapital did not return requests for comment. Officials with U.S. Bank said the company could not comment due to its position as trustee.

U.S. Bank and CWCapital have agreed to pay operating expenses on the apartment properties through the anticipated closing date on Jan. 21. But banks that take real estate back through foreclosure or bankruptcy don’t typically like holding onto the collateral for too long.

Robbin Rahman, an attorney with Atlanta-based Kilpatrick Townsend & Stockton who represented U.S. Bank and CWCapital, said the result of the auction was not the desired conclusion from his perspective.

“It gives me no pleasure to be the highest bidder,” Rahman said at the hearing.

He did not return requests for further comment.

Court filings detailed how some funds would be distributed in the case of a credit bid. Auction firm SVN/Motleys, the commercial real estate arm of Motleys Disposition Group, is to receive up to $100,000 for its efforts.

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Steve Leibovic
Steve Leibovic
6 years ago

What a waste. US Bank essentially forced many legitimate bidders to waste a whole lot of time, effort and money. And now what? They pay the auctioneer $100K and have to start the process of selling these all over again.

Rob Evans
Rob Evans
6 years ago

Someone please educate me on this: why would the “note holder” submit a bid and after that, outbid everyone else? Isn’t the point to see if you can recoup your funds? I’m confused. I assume there were higher bids than 36 mil winning bid??

jd
jd
6 years ago

Rob — Good question and that can be confusing. The bank at the auction is just like any other bidder and they have the right to “credit bid” on properties in which they have a deed of trust. It’s usually more of a defensive maneuver to protect the value of a property. Like any other bidder, they will do their own analysis and determine what they believe is the value of the real estate (just like any other bidder) and will bid that at auction. Usually this analysis is done when the loan goes into default (well before foreclosing) and… Read more »

Bruce Milam
Bruce Milam
6 years ago

Very few bidders in the auction process show up hoping to secure a property at market value. Nearly all assume that they’ll steal an asset. Very often the lender ends up being the top bidder. One can expect to see these assets back on the market soon, marketed ithrough a more traditional process and yielding higher values than what was seen last week. It’ll take some investment on the part of the trustees for the lender and more time than the auction process but that’s why the traditional approach is the most successful. ( and in full disclosure, I am… Read more »

Rob Evans
Rob Evans
6 years ago

JD/Bruce,

Thanks. That answers the mail. I would have assumed bids would have been in the 45+ million dollar range to pay off the lien, restitution, etc. Right?

Bruce Milam
Bruce Milam
6 years ago

Rob, the method chosen by the lenders to market the assets created an unhealthy sales environment. To achieve the highest values, these apartments need cosmetic improvements at the very least and they need to be brought back to the market in a trickle instead of a flood. Buyers need time to finance the properly instead of relying only on cash reserves. I can’t say for sure that your number will be achieved because only the “market” knows for sure. The buildings are in terrible condition for the most part after years of neglect, but they have the advantage of “good… Read more »

Rob Evans
Rob Evans
6 years ago
Reply to  Bruce Milam

Bruce,

Very informative, thank you. I assumed that these properties were in excellent shape. Did they go downhill before or after his legal troubles?

Off topic:

You mentioned you were a commercial broker: how did you get into the business? How is the barrier to entry?

Bruce Milam
Bruce Milam
6 years ago

Rob, for these answers, please feel free to call me at 804-591-2412.