Overview:
On
March 30th, 2006, Party A secured an ~$11.5m Construction Deed of
Trust for the purposes of developing Property X. On July 2nd, 2010
Party D instructed Party E to initiate foreclosure on the unsold units of
Property X. Said property reverted to a Party E reversion entity October 4th,
2010 with a ~$5m credit bid.
Transaction:
On
December 6th, 2011 Party B purchased the unsold units in Property X
from Party D for ~$4m. On February 15th, 2012, Party B purchased the
remaining Property X assets at Trustee’s Auction with a ~$1.25m credit bid,
bringing his total investment to ~$5.25m. On December 16th, 2011, an
investor group formed by Party A announced the purchase of Property Y for ~$7m
from Party B. The transaction was to be completed in two phases:
- $4.38m for 970 acres to close on or around December 15, 2011
- $2.79m for 524 acres to close on or around February 15, 2011
Analysis:
We
speculate that Party A enlisted the support of Party B to execute a complex
property exchange which ultimately sees Properties X and Y reverting to their
original ownership arrangements with far less debt in the case of Property X
and an appreciation of value and consideration for Party B in the case of
Property Y. Should our hypothesis prove correct, Party A regains Property X
without encumbrance for the ~$7m purchase price for Property Y and reversion of
said property. The prior encumbrance less the purchase price represents an
increase in the balance sheet value of the property of ~$4m or ~40%. Party B
regains Property Y with a recent sales price valuing it at ~$7m and ~$1.7m in
profit if no consideration accompanies the exchange. That profit represents a
~30% 2-month ROI.
The
entity that loses in this scenario is Party D whose only available recourse
against Party A is to foreclose the property and auction it at a steep loss.
This holds regardless of the extent of collusion between Parties A and B,
although the magnitude of the loss might have been mitigated had they been
aware of the non-arms-length nature of the bidders.
For this and other timely, accurate and actionable real
estate news, be sure to follow @Vizzda on Twitter® and to ‘like’ us on
Facebook.
No comments:
Post a Comment