In re Century Inv. Fund VII Ltd. Partnership
| Decision Date | 02 February 1989 |
| Docket Number | Bankruptcy No. 88-03061. |
| Citation | 96 BR 884 |
| Parties | In re CENTURY INVESTMENT FUND VII LIMITED PARTNERSHIP. |
| Court | U.S. Bankruptcy Court — Eastern District of Wisconsin |
Albert Solochek and Andrew N. Herbach, Howard, Peterman, Solochek & Nashban, S.C., Milwaukee, Wis., for O & G.
Malcom Gaynor, Robert D. Nachman, Richard M. Bendix, Jr., Schwartz, Cooper, Kolb & Gaynor Chartered, Chicago, Ill., David V. Jennings III, Godfrey, Trump & Hayes, (local counsel), Milwaukee, Wis., for debtor.
DECISION
This case came before the court upon the motion of J. Marshall Osborn and Arthur G. Grandlich ("O & G"), holders of a second mortgage on the real estate known as Valley View Apartments, for relief from the automatic stay or for adequate protection and for dismissal of the case for bad faith filing. At the final hearing, O & G withdrew the motion to dismiss and modified their motion to request that the court modify the stay to allow them to proceed with their foreclosure but to terminate the stay only upon further request of O & G. Minnesota Mutual Life Insurance Company, one of three holders of first mortgages on the property, supported O & G's motions. Other first mortgagees did not appear. The debtor objected to the relief requested.
The debtor moved that its exclusive period for filing a plan of reorganization be extended. 11 U.S.C. § 1121(d). The original exclusive period expired on November 10, 1988. This motion is opposed by O & G because they wish to file a competing plan. Finally, the debtor filed a motion to employ Century Management Group, Ltd. as the property management firm to manage the apartment complex, although the debtor has also argued that no approval is necessary because a property manager is not a "professional person" requiring court approval under 11 U.S.C. § 327. O & G and Minnesota Mutual objected to the appointment. Since the evidence expected to be submitted by each side was relevant to all pending motions, a decision was deferred until all evidence could be presented. An order relating to the use of rents and adequate protection of the first mortgagees was entered pending the outcome of these motions. The preliminary hearing was held on November 2, 1988, and evidentiary hearings were held on November 10, November 29, and December 13, 1988. The following persons testified:
After being thoroughly advised of the matter, the court makes the following determinations:
Century Investment Fund VII Limited Partnership was formed in 1984 for the purpose of acquiring Valley View Apartments, a 336 unit apartment complex in Fitchburg, Wisconsin, a suburb of Madison. Six 50 unit buildings were built in 1972, and two smaller buildings were built in 1974 and 1980. The purchase price was $9,300,000. The complex consists of eight buildings with a total of 48 efficiencies, 194 one bedroom units and 94 two bedroom units. Rents range from $335 to $350 for efficiencies, $370 to $395 for one bedroom apartments and $455 to $475 for two bedroom apartments. There are tennis courts and an in-ground, outdoor swimming pool.
The sole general partner of the debtor is Century Capital Group, a general partnership originally consisting of Wayne C. Chaney and J. Peter Jungbacker as general partners. In 1987, Century Capital Group, Ltd., a corporation, was formed and became another general partner of Century Capital Group. Jungbacker and Chaney each own 50% of the stock of Century Capital Group, Ltd. There are numerous limited partners.
Century Capital Group, Ltd. has three wholly owned subsidiaries. These include Century Capital Group Securities, Ltd., Century Capital Group Development, Ltd. and Century Management Group, Ltd. ("CMG"). CMG has been managing Valley View and other real estate projects of which Century Capital Group, Ltd. or Century Capital Group is a general partner and continues to do so pending a determination of CMG's status as a professional person and approval of appointment, if necessary. Chaney and Jungbacker are unpaid officers and directors of CMG. CMG has a third director, John Helling, who is also its president.
The parties stipulated that as of November 10, 1988, the following liens encumbered the property:
Minnesota Mutual $4,616.782
First Financial 309,024
Lutheran Mutual 223,112
Osborn & Grandlich 2,698,370
__________
$7,847,288
The first three creditors listed have separate first mortgages on three parcels comprising the apartment complex. O & G have a second mortgage on all three parcels. In addition, there were unpaid real estate taxes of approximately $122,000, as of the filing of the Chapter 11 on July 13, 1988, for years prior to 1988.
An appraisal prepared by Lawrence Golicz for O & G states that the fair market value of the property is $8,000,000 and the liquidation value is $6,400,000. However, the parties agreed that for the purposes of this hearing the value of the property as of the date the motion was filed on October 11, 1988, is equal to the total amount of the liens; that is, O & G is neither over- nor undersecured. They are fully secured. Conversely, the debtor has no equity in the property. This valuation is not binding for any purpose other than this motion.
Additional facts will be set forth in the appropriate parts of this decision.
O & G moved to have the automatic stay, imposed under 11 U.S.C. § 362(a), modified to allow it to foreclose on Valley View Apartments. They further requested that the stay be lifted without further notice upon subsequent request by O & G. The practical effect of such relief would be to allow O & G to continue the foreclosure but to maintain the jurisdiction of the bankruptcy court to allow O & G to submit a competing plan.
Under 11 U.S.C. § 362(d), the court shall grant relief from the stay if there is cause, including lack of adequate protection. 11 U.S.C. § 362(d)(1). The parties have stipulated that the value of the property is equal to the amount of outstanding liens, making O & G fully secured but not oversecured. The property is insured, current taxes are being escrowed, and the property is being maintained. Its value appears to be stable at the present time (although the value may diminish without certain improvements). If a feasible plan were on the horizon and if the value can be maintained, it appears that O & G has no interest in the property that is diminishing in value. Consequently, they would not be entitled to current payments as adequate protection. United Savings Association of Texas v. Timbers of Inwood Forest, 484 U.S. 365, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988). In other words, being fully secured is no better than being undersecured for the purpose of determining whether something more than maintaining the value of the property is necessary for adequate protection under Timbers. Interest payments are being made, however, to the first mortgagees to prevent their interests from increasing and encroaching upon the interest of the second mortgagee.
It appears that the debtor is able to maintain the property and to prevent any diminution in value in order to provide adequate protection of O & G's interest. Mr. Golicz, O & G's appraiser, did not testify to any substantial deferred maintenance that lowers the value of the property at the present time. Nevertheless, he felt that if certain improvements are not made promptly, the property's value could decline. This requires that expenditures for improvements be made in the immediate future, in addition to interest on the first mortgages, post-petition taxes, insurance and normal maintenance. These immediate improvements include:
1. Hallway carpeting. Until recently, all eight buildings had the original hallway carpet. Since filing, Mr. Helling testified that carpet in three hallways and three units was replaced for about $20,000. Ms. Biddick testified that she plans to recarpet two hallways and has received a bid of $16,000. This makes the cost of carpeting a hallway about $8,000. Given the age of the buildings, all but possibly the one built in 1980 should be recarpeted. Mr. Golicz testified to their decrepit condition, and his assessment is more credible than Ms. Biddick's, who appears to be, shall we say, overly charitable in her evaluation of the property. Since three have already been done, carpet for an additional four hallways would cost about $32,000.
2. Unit carpeting. The court was not convinced by Ms. Biddick's testimony that much of the original unit carpeting was serviceable (after 16 years?), nor that the carpet in the occupied units is as good as it is in the model apartment. Mr. Golicz felt that the original shag carpet which is still in about 80% of the units should be replaced. He said that much of it was dirty, smelled bad and was beyond cleaning. Three units have been recarpeted since the filing, and Mr. Helling testified that they usually recarpet about one unit per month, at a...
To continue reading
Request your trial