The commercial real estate workout consultancy and investment firm Breakwater Equity Partners has successfully restructured the debt on a troubled office building.
Embassy Plaza, a three-story, 132,000 square-foot building in Omaha, Neb. is owned by 22 individual tenant-in-common (TIC) investors who invested in the property as a source of retirement income.
The TIC investors purchased the property in 2004 for $17 million and were unable to refinance the property when the loan matured in November 2011. The lender forced the owners to suspend dividends in 2009.
By the time the loan reached its maturity date the property value had declined significantly. The lender was therefore unwilling to extend the loan, eventually declaring a default and starting the foreclosure process.
“When the lender stopped the dividends we knew that the property was in trouble,” said Robert Bartley, a member of the steering committee for Embassy Plaza. “We hired a couple of different law firms and a mortgage broker; when they failed, we hired Breakwater to save our investment. We couldn’t afford to lose all that money.”
Once hired, the San Diego-based company performed an in depth analysis of the investment, including potential litigation claims, property economics and possible bankruptcy reorganization strategies.
Breakwater recommended to the investors to do a comprehensive workout plan, which included converting from a TIC ownership to an LLC ownership structure.
Breakwater then successfully negotiated with the lender to reduce the loan payoff and provided the loan guarantees necessary to secure new long-term financing at a 5% interest rate. Dividend distributions will also be reinstated to Embassy Plaza investors within 60 days.
“When we invested in Embassy Plaza our objective was to create steady cash flow to fund our retirement,” said Bartley. “Many of the TIC investors depend on that income to pay for their living expenses. It was difficult losing the cash flow, but it would have been devastating to lose our entire investment.
“Naturally, we are very relieved that this matter has been favorably resolved,” Bartley continued.
Armand Nicholi, CFO of Breakwater Equity Partners, expects that Embassy Plaza investors will recover all of their investment capital, with dividends, over time.
“Despite the many difficulties faced by this property, it will be generating net income after debt service equal to approximately 7.5% of the initial cash investment,” Nicholi added. “We anticipate that the dividends will grow each year as rental revenue increases under our leasing agreements.”
