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.
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.