For more than a year, lawsuits and liens have been mounting on star-crossed Perkins Rowe to the tune of more than $30 million. So perhaps it didn’t come as a complete surprise when the consortium of banks that lent $170 million to fund construction of the multi-use development filed late last month to foreclose on the property.
And though Perkins Rowe has appeared to do fairly well from a retail perspective—several of the restaurant chains have broken first-year attendance records within their franchise groups—developer Tommy Spinosa has been in the crosshairs of contractors and vendors who have accused him of failing to pay his bills.
Perhaps the most shocking detail to emerge from the banks’ suit is that Perkins Rowe hasn’t paid interest on its loan since last October and now owes more than $165 million. That puts the property, with its trendy boutiques, restaurants and condominiums and its traditional town square complete with a fountain and park benches, in a more precarious position and raises the question: What’s next?
In the short term, it’s too soon to tell. Several scenarios could play out. But for the immediate future, it will be business as usual. Moviegoers, diners and shoppers won’t notice anything amiss. After all, it’s in the best interest of all for retailers to bring in as much money as possible.
Apartment renters, condo owners and retailers also are unlikely to notice changes to the way they conduct business—with one exception. They’ll be sending rent checks and directing all comments, complaints and questions to a receiver appointed by U.S. District Judge James Brady to run the property for the time being.
According to one boutique owner who asked not to be identified, representatives from the receiver—the Chicago-based global real estate management firm Jones Lang LaSalle—made the rounds on the afternoon of July 30. Accompanied by a federal marshal, they presented tenants with copies of the lawsuit and the Writ of Sequestration and provided them with a new address of where to send lease payments.
“Otherwise,” the retailer says, “they told us not to worry about anything and that it would be business as usual.”
Several scenarios
For the project in general, the foreclosure could play out several different ways. First, Spinosa could continue to negotiate with his lenders and attempt to refinance. That’s something Spinosa’s spokesperson insists he’s been doing for months, and the option Spinosa publicly has said he would like to pursue.
“We will continue to seek new financing and work with the lenders in the hopes of reaching a successful resolution,” says a statement prepared by Perkins Rowe spokesperson Jeff Wright.
How likely is that to happen? After all, if the banks have gone so far as to initiate foreclosure proceedings, wouldn’t that imply that negotiations are at an end?
Not necessarily, say observers.
“Banks have regulators and shareholders, and a lot of times they feel more comfortable if they’re moving down the litigation path and they don’t want to get delayed while they continue to talk,” says one local bankruptcy lawyer who asked not to be identified. “So that’s pretty normal.”
But others say the odds of Spinosa refinancing are highly unlikely, given his track record on the project and the current lending climate.
“The conduit market for those kinds of developments has just dried up, and the fact that he’s got liens and everything makes it even messier,” says one local banker who’s familiar with the project. “He’s going to have a tough time refinancing.”
A more likely scenario would be for the foreclosure to go forward, a process that will take several months. The lawsuit—filed by Cleveland-based KeyBank acting as an agent for itself and eight other banks: Amegy Bank National Association, Bank of America, Bank of New Orleans, Comerica Bank, Guaranty Bank, National City Bank, People’s Bank and PNC Bank—is in federal court and is not an executory suit, meaning it is not on an expedited, or special, timetable.
As such, all parties have ample time to answer all proceedings and file countersuits, something Perkins Rowe or Spinosa might do. That would delay the process even more. Only after all legal issues are settled would the development, which opened in October 2007 at Perkins Road and Bluebonnet Boulevard, be put up for sale, at which time the bank would either buy it out of foreclosure and then sell it, or negotiate with a third party ahead of time to buy it and pay off the mortgage.
“Either way, this could drag on for some time,” says another local bankruptcy attorney who asked not to be identified.
Under a third scenario, Perkins Rowe would file for Chapter 11 bankruptcy. If that happens, the foreclosure proceeding essentially grinds to a halt. Granted, corporate bankruptcies do not drag on for years as they once did, but they don’t move quickly, either.
Of greater interest, perhaps, is the fact that a bankruptcy filing could put Perkins Rowe and Spinosa back in control of the development’s revenue stream. In most bankruptcy cases, the debtor is given control over its finances during the reorganization process and becomes what is known as a Debtor-in-Possession. The court could overrule that and leave the receiver in control or appoint a trustee. But the burden of proof would rest with the lender to establish the need for a trustee and, though surprising, that’s more difficult to establish than one might think.
“Someone has to come in and show there is a valid reason to appoint a trustee,” says a well-known bankruptcy lawyer. “It’s not just enough that the debtor’s not paying its bills. That’s the whole reason there’s bankruptcy in the first place. You have to prove gross mismanagement and fraud.”
Regardless of who would be in control of Perkins Rowe’s revenues in a bankruptcy case, the odds of the many creditors who have filed liens on the project getting anything more than pennies on the dollar are slim to none. Those subcontractors and vendors likely will not fare any better in a foreclosure sale. Under either scenario, the banks are paid first. Only the remaining crumbs would go to the subs.
“The liens will end up getting scraped off unless someone pays enough to cover them,” says a bankruptcy attorney. “They may still get something from the general contactor, but not from the property itself.”
Rouzan impact
Another question arising from the Perkins Rowe foreclosure is what the developments mean for Rouzan, Spinosa’s 120-acre, Southdowns-area TND that remains in the planning stages but is moving forward, according to Spinosa’s spokesman.
“Rouzan’s a completely different partnership, and what goes on at Perkins Rowe shouldn’t have any impact on what goes on there,” says one local real estate analyst who’s familiar with the project.
In theory, perhaps it shouldn’t. But as a practical matter, it likely will. Spinosa has had trouble securing financing for the project, which is one reason virtually nothing has happened since it was approved almost one year ago. Though lenders might like what they see on paper, observers suspect they will be dissuaded by what has happened at Perkins Rowe.
“He is so tainted right now with this situation, I think he’s going to have a hard time getting the Rouzan project done,” says one local bank executive.
Lenders might not be the only ones giving the project a hard look. Members of the East Baton Rouge Parish Library Board, who have a contract with Spinosa to donate land and then build a library in Rouzan, are carefully watching what happens at Perkins Rowe.
“We’ve been concerned for some time about the issues that have come up at Perkins Rowe, and I do think this latest one is a little different than some of the prior ones,” Library Board Chairman Dan Reed says. “But I don’t know enough about the impact this would have on Rouzan to make a reasoned judgment on it at this time.”
One factor working in Spinosa’s favor with respect to Rouzan is a proposed amendment to the parish ordinance governing TNDs that would give the developer unlimited time to finish the project.
Under the current code, Spinosa must begin construction by September 2010—two years from the date of approval—or he has to resubmit his proposal to the Planning Commission. A little-noticed amendment passed by the Planning Commission on July 20, however, would do away with the time limit and also allow for other changes that would favor the developer.
Rouzan opponents in Southdowns are concerned about the proposed amendments, especially in light of the foreclosure proceedings at Perkins Rowe.
“We have to watch it carefully, because surely the two are connected in some way,” says Angela Angelloz, a board member of the Southside Civic Association.
The Metro Council will vote on the amendments at its Aug. 19 meeting. Should the changes pass, it will be one of the most positive developments for Spinosa in a long time.
PERKINS ROWE AT A GLANCE
Location: Perkins Road at Bluebonnet Boulevard
Open: October 2007
Residential units: 229 apartments and 88 condominiums
Retail space: More than 300,000 square feet
Retail tenants: Include Anthropologie, Bally Total Fitness, Barnes & Noble, California Pizza Kitchen, Cinemark Theatres, Fresh Market, J. Crew, kiki, Kona Grill, La Madeleine, Orvis, Paris Parker Aveda Salon, Sur La Table, Texas de Brazil, The Grape, The Grillroom, The Loft, Urban Outfitters, Z Gallerie
Office space: More than 250,000 square feet
Office tenants: Include Echelon Construction, LaPorte Sehrt Romig Hand, The NeuroMedical Center
