Barr could lose Park Lafayette

The developer of the massive and largely vacant Park Lafayette condos on Milwaukee’s east side, who filed for Chapter 11 bankruptcy before Christmas in a last-ditch effort to maintain control of the property, is unlikely to succeed with a reorganization plan.

That’s the preliminary diagnosis of bankruptcy experts after the Chicago developer’s first appearance in Bankruptcy Court last week. Prior to the hearing, Chicago developer Warren Barr and his partners submitted a concept for continuing to run the project with $7.5 million in financing from Frank Giuffre’s Mallory Properties of Milwaukee. Under that concept, the bank would receive the first $20 million in proceeds from condo sales and after that would get 75 percent of proceeds, with Mallory getting the remaining 25 percent.

Barr and his partners need to win approval of project financier Amalgamated Bank and Bankruptcy Court Judge Pamela Pepper, and both are skeptical of the plan. If the Chapter 11 plan doesn’t fly, the Barr group could end up back in a foreclosure case that the bankruptcy filing stayed.

Amalgamated Bank, of New York City, would gain control of the twin 20-story towers, their 280 units and underground parking. The bank would either sell or manage Park Lafayette.

The developer’s challenges mean that unsecured creditors, including general contractor Hunzinger Construction of Brookfield, will face a daunting, if not impossible, task in recovering any of their claims, experts said.

Barr’s Renaissant Lafayette LLC’s preliminary reorganization concept drew immediate objections from Amalgamated Bank and assistant U.S. trustee David Asbach. The bank and Asbach also opposed the developer’s interim financing plan.

Pepper, citing concerns about Renaissant Lafayette’s proposal for interim funding to run the property, rejected the developer proposal and approved a funding plan from the bank.

“They have an uphill battle to work this out,” Asbach said in an interview, referring to the developers.

Amalgamated Bank attorney Peter Blain of Milwaukee declined to comment, and Barr and his Chicago attorney did not return calls seeking comment.

Project delays

Renaissant Lafayette filed for Chapter 11 reorganization in Milwaukee on Dec. 23, 2009. The Chicago developer said its assets — essentially the building — total about $60 million and its liabilities are about $106 million. About $103 million of that debt is with Amalgamated Bank.

Renaissant Lafayette acquired the property on North Prospect Avenue and East Lafayette Place in 2005. Cost overruns delayed the project in early 2009, but the bank agreed to finance the completion, which took until June 2009.

Sales have been slow in the depressed condo market. The developer said it has entered sales contracts for 39 residential units and has leased 12 units. Many of the sales contracts are in dispute as the prospective buyers have sued to get refunds on their deposits.

Amalgamated Bank sought foreclosure in Milwaukee County Circuit Court in September 2009, claiming Barr and his partners owed more than $100 million on construction loans. The bank won court approval on Oct. 26, 2009, to appoint Robert Monnat of Mandel Group, Milwaukee, as the receiver to run the property in foreclosure.

The Dec. 23 bankruptcy filing by Barr’s group surprised the bank as the developer provided no advance notice, Blain said during a Bankruptcy Court hearing on Dec. 30.

The developer’s attorney, Forrest Lammiman of Chicago, told Pepper that Renaissant Lafayette can complete and file its reorganization plan by late January. The plan envisions a five-year process of reorganizing and paying back creditors, he said.

“It’s a wonderful structure in an important part of the city of Milwaukee and we believe it can develop well when the market is back,” Lammiman said.

Nearly all of Renaissant Lafayette’s proposal is unacceptable to the bank, including a proposal to pay Mallory Properties 15 percent or more interest on the loan, Blain said in court.

The main rub in the case is that the bank carries more power than many creditors in Chapter 11 cases by virtue of being the only secured creditor and also the largest unsecured creditor. Part of Amalgamated’s debt is secured by the estimated $60 million project value and the remaining $40 million-plus is unsecured, which dwarfs the money owed to other unsecured creditors.

Renaissant Lafayette will need the support of the bank for any reorganization, bankruptcy observers said. So far, the bank isn’t buying the plan.

“It’s going to be very difficult to confirm the plan of reorganization,” said Russell Long, a Milwaukee attorney who specializes in foreclosure, bankruptcy and receivership cases at Davis & Kuelthau SC.

Blain told Pepper he is willing to meet with Lammiman to discuss whether they can resolve their differences “on a mutually acceptable basis” before the next hearing scheduled for Jan. 20.

If the bank decides not to change its position, the Barr group probably would lose control of Park Lafayette, said legal industry sources. The bank could seek Pepper’s approval to either lift the stay on the foreclosure case or permit the bank to file its own plan for the property. Either way, the Barr group would be out and the bank would take control.

If the developer converted the case to Chapter 7 liquidation, the property also would likely go back into foreclosure.

Renaissant Lafayette’s only hope might be that Amalgamated Bank, like most commercial lenders, would rather not take over another failed property.

The $4.8 billion-asset bank sustained a net loss of $22.1 million through Sept. 30, 2009, and saw its loan charge-offs increase fivefold, to $46.9 million.

John Wirth, a Milwaukee attorney representing Mallory Properties, said at the Dec. 30 hearing that Amalgamated Bank had become “overextended and overbloated” on its loans for Park Lafayette. The Barr/Mallory proposal could provide relief for the bank, he said.