In re 431 W. Ponce De Leon, LLC

515 B.R. 660

In re 431 W. PONCE DE LEON, LLC, Cartel Properties Spalding Woods, LLC, 525 Moreland Avenue, LLC, Cartel Properties II, LLC, Rohrig Investments, LP, and Rohrig Pollack, LLC, Debtors.

Nos. 13–53479, 13–53480, 13–53481, 13–53482, 13–53483, 13–53485.

United States Bankruptcy Court,

N.D. Georgia,

Atlanta Division.

Signed Aug. 11, 2014.

David L. Bury, Jr., Ward Stone, Jr., Stone & Baxter, LLP, Macon, GA, for Debtors.

David S. Weidenbaum, Office of the U.S. Trustee, Atlanta, GA, for Guy G. Gebhardt, U.S. Trustee.

ORDER ON CONFIRMATION OF FIRST AMENDED JOINT PLAN OF REORGANIZATION OF THE DEBTORS DATED DECEMBER 18, 2013, AS AMENDED AND THE SECOND AMENDED PLAN OF LIQUIDATION FOR EACH DEBTOR PROPOSED BY RREF BB ACQUISITIONS, LLC DATED DECEMBER 31, 2013, AS AMENDED

BARBARA ELLIS–MONRO, Bankruptcy Judge.

This case came before the Court for a hearing (the “Hearing”) ¹ on March 26, 27, 28, 31, and April 24, 25, and 28, 2014, on confirmation of competing chapter 11 plans filed by 431 W. Ponce De Leon, LLC, Cartel Properties Spalding Woods, LLC, 525 Moreland Avenue, LLC, Cartel Properties II, LLC, Rohrig Investments, LP, Rohrig Pollack, LLC (collectively, the “Debtors”) [Main Case, Doc. No. 266, 351, 390, 762],² (the “Debtors' Plan”), and by Debtors' senior secured creditor, RREF BB Acquisitions, LLC (“Rialto”) [Main Case, Doc. No. 371, 389, 402, 787] (collectively, the “Rialto Plans”). At the Hearing, testimony was presented, Debtors' Exhibits 0–4, 6–25, 27–32, 34, Rialto's Exhibits 31–34, 45–51, 54 and The Knuckle Partnership and Robert C. Loudermilk (collectively, “TKP”) Exhibits 1–5 were admitted, and counsel presented opening and closing arguments. After carefully considering all of the evidence presented, the arguments and briefs of the parties and the entire record of these cases, the Court now enters its findings of fact and conclusions of law as provided by Fed. R. Bankr.7052 as applied by Fed. R. Bankr.P. 9014.

I. BACKGROUND AND PROCEDURAL HISTORY

George Rohrig (“Rohrig”) has been developing property in Atlanta for 35 years. Since at least the early 1980s, Rohrig has managed his LLCs and the properties held by the LLCs through Cartel Properties, Inc. (“Cartel Properties”). At present, Cartel Properties manages 30 to 40 LLCs for Rohrig which include the Debtors. The management team employed by Cartel Properties has been together for a number of years, and provides leasing, accounting and maintenance services to the Debtors. Rohrig has a large number of non-debtor LLCs that include a substantial contingent of restaurant properties. Rohrig's business model relies on use of restaurant properties to create traffic in an area for retail in addition to restaurant, with the goal of redeveloping an area, one neighborhood at a time. Rohrig prefers to pursue a buy and hold strategy.

Four of the Debtors, 431 W. Ponce De Leon, LLC (“431”), Cartel Properties Spalding Woods, LLC (“CPSW”), 525 Moreland, LLC (“525”), and Rohrig Pollack (“RP”) are single asset entities. 431 owns a multi-tenant retail center at 431 W. Ponce De Leon Avenue. [Case No. 13–53479, Doc. No. 36]. CPSW owned a shopping center at 4015 Holcomb Bridge Road, which was transferred to Rialto post-petition. [Main Case, Doc. No. 31]. 525 owns two properties located at 515 and 525 Moreland Avenue [Case No. 13–53481, Doc. No. 31]. These two parcels are part of the “Moreland Assemblage,” ³ and are subject to a contract for sale that was approved by the Court on October 29, 2013. [Main Case, Doc. No. 136, 145, 345]. RP owned a property that was damaged by fire pre-petition. Rialto received the insurance proceeds for this property and sold the property at a foreclosure sale, with the obligation secured by RP's propertybeing paid in full. [ Case No. 13–53485, Doc. No. 28].

Two of the Debtors, Cartel Properties II, LLC (“CPII”) and Rohrig Investments, LP (“RI”) own multiple properties. CPII owned thirteen properties on the petition date. [Case No. 13–53482, Doc. No. 28]. One of these properties has since been sold. [Main Case, Doc. No. 136, 145, 345]. RI owned 10 properties on the petition date. [Main Case, Doc. No. 62]. Three of these properties have since been sold. [Main Case, Doc. No. 136, 145, 167, 345]. There are no non-family partners that have an interest in the Debtor entities. In fact, Rohrig referred to the properties owned by the Debtors as the “family farm.” [Tr. 3/31; 5:17 ⁴].

Rialto, Debtors' senior secured creditor, purchased thirteen promissory notes (the “Notes”) secured by Debtors' properties from BB & T, with whom Debtors had a twenty year relationship. The Notes matured and were not renewed thereby causing Debtors' default. On September 8, 2012, Debtors and Rialto entered into a forbearance agreement (the “Forbearance Agreement”) which generally provided for Debtors to pay Rialto $12,000,000 on or before November 15, 2012, in order to obtain an extension of the term of the Notes. [D. Ex. 12]. The Debtors were not able to obtain the full amount required by the Forbearance Agreement, and Rialto filed suit in state court seeking appointment of a receiver. A receiver was in fact appointed on February 15, 2013. [D. Ex. 15]. Debtors filed these cases on February 19, 2013 (the “Petition Date”).

Rialto filed proofs of claim in these cases totaling $20,771,741.46. [Main Case, Claim 2–1, Ex. 1]. It is undisputed that Rialto holds the largest claim in these cases. On or about May 10, 2013, the Debtors and Rialto entered into an agreed cash collateral order which included stipulated values for Rialto collateral totaling $23,646,042.25. [Main Case, Doc. No. 126]. Thus, it is generally agreed that Rialto's claim is oversecured.

Since the Petition Date, Rialto took possession of two properties, 4015 Holcomb Bridge Road, and 2977 E. Ponce De Leon, through deeds in lieu of foreclosure, reducing its claim by $5,600,000. Debtor further reduced its obligations to Rialto by selling 422–432 E. Howard Avenue and 118 Hillyer Place for $1.875 million. [Main Case, Doc. No. 167, 292]. Debtors have also obtained approval of the proposed sale of the Moreland Assemblage which has not yet closed but is anticipated to close in October, 2014. [Main Case, Doc. No. 136, 145, 345]. As of December 18, 2013, Debtors estimate Rialto is owed $10,771,740.96. [Main Case, Doc. No. 393]. As of the Hearing, Rialto estimates that it is owed $12,273,464.44 in principal plus interest, fees and costs for a total claim, before consideration of a possible § 506(b) claim, of $15,037,490.27. [Tr. 4/25; 11:29].

RI has additional secured creditors as follows: Oneaveious D. Lester owed $55,223, secured by property at 2271 Cascade Road; State Bank & Trust Co. (“State Bank”) owed $330,000, secured by a junior lien on property at 246 W. Ponce De Leon Avenue; Touchmark National Bank (“Touchmark”) owed $681,856, secured by property at 2781 E. College Avenue; and Wells Fargo Bank, N.A., (“Wells Fargo”) owed $1 million on a line of credit secured by property at 805 Peachtree Street, # 620. RI also owes approximately $2.85 million on three separate lines of credit to: Bank of North Georgia for $1.45 million related to financing of property at 878 Peachtree Road, Unit # CU–1; Brookhaven Bank for $2.35 million related to financing of property at 891 Howell Mill Road; and Georgia Primary Bank for $461,961, related to financing of property at 240 DeKalb Industrial Highway.

CPII has additional secured creditors as follows: Bank of North Georgia owed $2,788,777 on a non-recourse basis, secured by a senior lien on property located at 2575 Peachtree Road; Green Tree Servicing, LLC (“Green Tree”) owed approximately $259,177.87 on a non-recourse basis, secured by a junior lien on property located at 2575 Peachtree Road; Chase Mortgage (“Chase”) owed approximately $9,076 on a non-recourse basis, secured by property at 3057 Pharr Court, Unit G–3; CitiMortgage, Inc., (“CitiMortgage”) owed approximately $450,294.20, secured by property at 10 Venetian Way, # 504; Midtown Bank & Trust Company (“Midtown”) owed $3.88 million on a non-recourse basis, secured by property at 5965 Covington Highway; Regions Bank owed $176,461 on a non-recourse basis, secured by property at 433 N. McDonough Street; and Farmers & Merchant Bank (“Farmers”) owed $174,061, secured by CPII's 50% interest in property at 433 N. McDonough Street.

Debtors scheduled approximately $16 million in unsecured claims, comprised largely of affiliate loans, equity lines of credit, and management fees. [Main Case, Doc. No. 62]. Thus, at the time of filing, Debtors claimed $57.546 million in assets, $30.4 million in secured debt, and $16 million in unsecured claims, including insider claims.

Debtors filed their initial plan of reorganization on August 20, 2013 [Doc. No. 268]. On November 11, 2013, Debtors filed a First Amended Plan of Reorganization [Doc. No. 351] and on December 18, 2013 the Debtors' Plan considered herein.

Although Rialto's debt has been paid down by several millions of dollars since the Petition Date, Rialto is dissatisfied with the Debtors' Plan and filed a competing liquidating plan on December 3, 2013 as amended on December 31, 2013 and thereafter on January 30, 2014, March 26, 2014 and April 23, 2014. [Doc. No. 371, 389, 402, 463, 762, 787].

II. THE PLANSA. Debtors' Plan

The Debtors' Plan proposes to pay a 100% dividend to creditors over 10 years. Debtors propose to continue the current uses of their properties and to fund their Plan through cash flow generated by the properties and LLC interests. [Main Case, Doc. No. 266, 351, 390, 762]. Debtors propose to pay $356,315 in ad valorem taxes in 48 monthly installments with interest at the rate of 5.25%. Rialto's claims are to be paid in 120 installments amortized over 30 years with interest at the rate of 5.25%. The claims of Green Tree, State Bank, and Wells Fargo are also to be paid in 120 installments with interest of 4.32% for Green Tree and Wells Fargo, and 6.07% ⁵...