The general contractor and 26 subcontractors owed more than $2.3 million for work on the bankrupt Landmark and Meridian condominium towers in Greenwood Village have won an important agreement in bankruptcy court in Denver that protects their ability to be paid.
At the heart of the matter is an additional $30 million that developer Zachary Davidson’s group is poised to get from its main lender, Hypo Real Estate Capital Corp., the subject of an earlier InsideRealEstateNews.com blog today. Davidson’s group, 7677 East Berry Avenue Associates L.P., already is on the hook to Hypo for more than $90 million. The additional $30 million in debtor-in-possession financing would be instead of $15 million in DIP financing from Carmel Partners in San Francisco, which Davidson had announced soon after filing for Chapter 11 reorganization bankruptcy on Aug. 30., citing $168 million in assets and $116 million in liabilities.
“We opposed (the DIP financing) at first,” said Thomas C. Bell, a partner with Denver-based Davis Graham & Stubbs, who represents the general contractor, Dallas-based Beck Residential LLC, and 26 local subcontractors. The subcontractors have claims ranging from $1,000 to $200,000.
“Our mechanic liens would have been wiped out,” under the initial debtor-in-possession, or DIP, financing agreement, Bell said today. “Should Hypo have chosen to foreclose, all of our concerns would have been wiped out. We are definitely now in better shape. ”
If Davidson’s group was to default on the DIP financing and Hypo chose to foreclose, it would have only needed to bid the amount it was owed, whether it was $10 million or $30 million, and that would have left no money available to Beck and the subcontractors, Bell explained.
Instead, Hypo has agreed not to place its repayment of the $30 million ahead of the money owed to the subcontractors, although the exact amount they will be paid still has not been determined.
“I think it was as good as we were going to get,” Paul Higgins, managing director of Beck Residential told InsideRealEstateNews.com last week. Higgins, however, said he would have preferred that the court had specified the amounts the workers would have been paid. Instead, that will be determined at a later time.
In a colorful phrase called the “Liquidation Waterfall,” court documents spell out what will happen to the mechanic liens in the event of a default and foreclosure. As part of the terms of the liquidation waterfall, Hypo would “pay in full all undisputed Mechanic’s Lien Claims (including interest to the extent by law),: and would escrow the full amount of all disputed mechanic lien claims.
“To be clear, the DIP Lender will not cause a foreclosure sale or otherwise cause the conveyance or liquidation on terms that will defeat this Liquidation Waterfall, including by restricting the funds available for distribution to the Mechanic’s Lien Claims,” according to court documents.
Also important, Bell said, is that the court set deadlines for filing objections to claims by three of the main players – Beck, Environmental Landwork and Milender White Construction. Anyone filing an objection needs to file a “proof of claim” by Nov. 30 and they must be “filed and served” by Jan. 25, which the court said will expedite resolutions.
Typically, a general contractor is paid by the developer, who then pays the subcontractors. At the Landmark/Meridian, the general contractor, Beck, had a clause in its contracts with the subs saying that if it did not get paid, the subs would have no claim against Beck.
Since Beck has not been paid, lawyer Bell said the subs, who along with Beck have filed mechanic liens of about $3 million on the project, would have had a difficult time collecting from Beck. Davidson, who did not immediately respond to a request for a comment, is disputing some of the claims. Still, Beck wants to protect the rights of the subs and see that they are paid, said Bell, who in addition to being a lawyer is a certified civil engineer.
In addition to Beck, Land Title and Environmental Landwork, others who have filed mechanic liens include Blue Architects, Buchanan Yonushewski Group, Code Fire LLC, Colorado Comfort Products and Dal Tile.
Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.