In re Northbelt, LLC

• Decision Date: 29 May 2020
• Docket Number: Case No: 19-30388
• Citation: 630 B.R. 228
• Court: U.S. Bankruptcy Court — Southern District of Texas
• Parties: IN RE: NORTHBELT, LLC Debtor.

630 B.R. 228

IN RE: NORTHBELT, LLC Debtor.

Case No: 19-30388

United States Bankruptcy Court, S.D. Texas, Houston Division.

Signed May 29, 2020

Joyce Williams Lindauer, Joyce W. Lindauer Attorney PLLC, Dallas, TX, for Debtor.

MEMORANDUM OPINION

Resolving ECF Nos. 88, 96, 99, 125

Eduardo V. Rodriguez, United States Bankruptcy Judge

When a debtor proposes a plan for reorganization, there is often a tension between the Debtor's hope for confirmation and the reality that one dollar cannot do two dollars' work. In this single asset real estate case involving a 12-story commercial office building in Houston, Texas, Northbelt, LLC, proposed a Chapter 11 plan for reorganization that was swiftly met with staunch opposition by its major creditor. Pending before the Court are three separate but related matters: (i) Debtor's Objection to Wilmington Trust, N.A., As Trustee For Morgan Stanley Bank Of America Merrill Lynch Trust 2014-c19, Commercial Mortgage Pass Through Certificates, Series 2014-C19's Proof of Claim No. 5; (ii) Wilmington Trust's N.A., As Trustee For Morgan Stanley Bank Of America Merrill Lynch Trust 2014-c19, Commercial Mortgage Pass Through Certificates, Series 2014-C19's Motion for Relief from the Automatic Stay; and (iii) Northbelt, LLC's First Amended Chapter 11 Plan.

The Court conducted an initial hearing on plan confirmation and claim objection on August 12, 2019, held further hearings on all three matters in an omnibus fashion on December 11, 2019, and concluded the hearings on January 16, 2020. At the conclusion, the Court took the matter under advisement and ordered briefing. All briefs have now been submitted and the matters are ripe for determination. After considering the pleadings on file, arguments of counsel, applicable law, credibility of witnesses, all other evidence in the record and for the reasons set forth in this Court's Memorandum Opinion, (i) Debtor's Claim Objection is sustained in part and overruled in part. Wilmington Trust, As Trustee For Morgan Stanley Bank Of America Merrill Lynch Trust 2014-c19, Commercial Mortgage Pass Through Certificates, Series 2014-C19's shall have an allowed claim in an amount not to exceed $15,060,084.74 subject to the filing of an amended proof of claim within fourteen (14) calendar days after entry of this Court's Order;¹ (ii) Wilmington Trust As Trustee For Morgan Stanley Bank Of America Merrill Lynch Trust 2014-c19, Commercial Mortgage Pass Through Certificates, Series 2014-C19's Motion For Relief From the Automatic Stay is denied but conditioned upon

630 B.R. 239

Debtor filing a modified plan within forty-five (45) calendar days after entry of this Court's Order; and (iii) Northbelt, LLC's Plan of Reorganization dated June 13, 2019, is not confirmed.

I. FINDINGS OF FACT

This Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, which is made applicable to contested matters pursuant to Federal Rules of Bankruptcy Procedure 7052 and 9014. To the extent that any finding of fact constitutes a conclusion of law, it is adopted as such. To the extent that any conclusion of law constitutes a finding of fact, it is adopted as such. This Court made certain oral findings and conclusions on the record. This Memorandum Opinion supplements those findings and conclusions. If there is an inconsistency, this Memorandum Opinion controls.

a. Background History

On September 19, 2014, Northbelt, LLC ("Northbelt " or "Debtor ") and Bank of America, N.A. ("BofA ") entered into an agreement ("Loan ") whereby BofA loaned Northbelt $13,500,000.00 for the acquisition of a 12-story commercial office building located at 333 N. Sam Houston Parkway, Houston, Texas ("Property "). The Loan was later transferred by assignment to Wilmington Trust As Trustee For Morgan Stanley Bank Of America Merrill Lynch Trust 2014-c19, Commercial Mortgage Pass Through Certificates, Series 2014-C19 ("Wilmington Trust " or "Secured Lender "), and as of September 19, 2014, Wilmington Trust is the present holder as evidenced by the following documents,: (i) a promissory note ("Note ") in the original principal amount of $13,500,000 executed and delivered by Northbelt to BofA, (ii) a Loan Agreement ("Loan Agreement ") by and between Northbelt and BofA, and (iii) a Deed of Trust, Assignment of Leases and Rents, and Security Agreement ("Deed of Trust ") executed and delivered by Northbelt to a trustee named for the benefit of BofA. Wells Fargo Bank, N.A. ("Wells Fargo ") is the master servicer for Wilmington Trust and is authorized to service the Loan on Wilmington Trust's behalf. Rialto Capital Advisors, LLC ("Rialto ") is the special servicer for Wilmington Trust and is authorized to service the Loan on Wilmington Trust's behalf.

Following the bundling and assignment of the Loan, Wilmington Trust claimed that Northbelt triggered several defaults under the provisions of the Loan, which Wilmington Trust then used as grounds to move for appointment of a receiver. Shortly thereafter, Debtor filed the instant Chapter 11 petition ("Petition ") as a single asset real estate ("SARE ") case on January 28, 2019 ("Petition Date ").²

Debtor is a single purpose entity created to acquire, own, and hold the Property.³ Pursuant to Debtor's Schedule A, Debtor values the Property at $19,000,000.00.⁴ Additionally scheduled are $358,459.93 in ad valorem tax liens, $256,921.27 in mechanic and materialman's liens, and $12,700,000.00 in favor of Wilmington Trust, leaving an equity cushion—according to Debtor's value of the Property—in the amount of $5,684,618.80. Unsurprisingly, Wilmington Trust values the Property only at $7,600,000.00

On April 1, 2019, the Court approved an application employing Belvoir Asset Management

630 B.R. 240

LLC to operate and manage the Property.⁵ On April 23, 2019, Debtor filed its Disclosure Statement and Plan⁶ which were both subsequently amended ("Amended Plan ") on June 13, 2019, and are currently the live pleadings before the Court.⁷ On June 17, 2019, this Court approved the Disclosure Statement, scheduled plan confirmation for August 12, 2019, and set out certain deadlines to file ballots and objections.⁸ On August 5, 2019, Wilmington Trust filed its Objection to Confirmation of Debtor's First Amended Plan of Reorganization ("Objection to Confirmation ").⁹ Two days later, Debtor filed its Objection to Wilmington Trust's Proof of Claim No. 5, ("Claim Objection ").¹⁰ On October 4, 2019, Wilmington Trust filed its Motion For Relief From The Automatic Stay, ("Motion For Relief ").¹¹ A full day trial on all three matters was conducted on December 11, 2019, which was continued and concluded on January 16, 2020. At the conclusion of trial, the Court took the matter under advisement and ordered the parties to file a joint stipulation of undisputed facts.

b. Factual Stipulations of the Parties

On February 6, 2020, the parties filed the following list of stipulated facts:¹²

Procedural History

1. On January 28, 2019 (the "Petition Date "), the Debtor filed a petition for relief under Chapter 11 of the Bankruptcy Code (the "Petition "). Since the Petition Date, the Debtor has operated as a debtor-in-possession.

2. Debtor owns and operates that certain commercial real property located at 333 N. Sam Houston Parkway in Houston, Texas (the "Property ") from which it derives substantially all of its income. The Property is a 12-story, atrium style multi-tenant office building. On February 13, 2019, the Court entered an agreed order (the "Interim Cash Collateral Order ") [Docket No. 22] between Secured Lender and the Debtor governing the Debtor's use of Secured Lender's cash collateral during this Chapter 11 case. Among other things, the Interim Cash Collateral Order granted Secured Lender liens on the post-petition cash generated from the Property in the form of rents. The Debtor's authority to use this cash has been limited to a court-approved budget. Interim Cash Collateral Order further required that, "as adequate protection in accordance with Section 363(e) of the Bankruptcy Code, the Debtor shall pay to the Secured Lender on the 1st day of the month all cash in excess of actual operating expenses incurred pursuant to the budget...

3. On February 25, 2019, Debtor filed its initial schedules of assets and liabilities [Docket No. 34] and statement of financial affairs [Docket No. 35]. The Debtor filed amended schedules of assets and liabilities on December 10, 2019 (as amended, the "Schedules ") [Docket No. 137].

630 B.R. 241

4. On February 28, 2019, the Court entered an agreed order (the "Final Cash Collateral Order ") [Docket No. 38] approving Debtor's use of cash collateral on a final basis on terms substantially similar to the Interim Cash Collateral Order.

5. On April 23, 2019, Debtor filed its Chapter 11 Plan of Reorganization [Docket No. 53] and accompanying Disclosure Statement [Docket No. 54].

6. On June 11, 2019, Secured Creditor filed a claim in the amount of $15,385,325.53 ("Secured Lender's Proof of Claim ") [Claim No. 5]. On June 13, 2019, the Debtor filed its First Amended Plan of Reorganization [Docket No. 88] (the "Plan ")¹³ and accompanying Amended Disclosure Statement (the "Disclosure Statement ") [Docket No. 89]. The Court approved the Disclosure Statement on June 17, 2019.

7. On August 5, 2019, Secured Lender filed an objection to confirmation of the Plan (the "Plan Objection ")¹⁴ [Docket No. 96]. The Debtor filed a response to Secured Lender's Plan Objection on August 9, 2019 [Docket No. 103]. Secured Lender filed its Declaration of Jonathan Stanton in support of the Plan Objection on August 12, 2019 [Docket No. 106].

8. On August 7, 2019, Debtor filed an objection to Secured Lender's Proof of Claim (the "Claim Objection ") [Docket No. 99] and its Declaration of Donald Testa in support of the Claim Objection on August 8, 2019 [Docket No. 102]. Secured Lender filed a response to Debtor's Claim Objection on September 6, 2019 [Docket No. 113].

9.

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