MATTER OF HISTORIC MACON STATION LTD.

• Decision Date: 24 March 1993
• Docket Number: Bankruptcy No. 90-52051,Adv. No. 90-5109.
• Citation: 152 BR 358
• Parties: In the MATTER OF HISTORIC MACON STATION LIMITED PARTNERSHIP, Debtor. HISTORIC MACON STATION LIMITED PARTNERSHIP, Debtor in Possession, Movant-Plaintiff, v. PIEDMONT-FORREST CORPORATION, Defendant-Respondent, and Georgia Power Company, United Way Macon and Bibb County, and Macon-Bibb County Convention and Visitors Bureau, Inc., Respondents.
• Court: U.S. Bankruptcy Court — Middle District of Georgia

152 B.R. 358 (1993)

In the MATTER OF HISTORIC MACON STATION LIMITED PARTNERSHIP, Debtor HISTORIC MACON STATION LIMITED PARTNERSHIP, Debtor in Possession, Movant-Plaintiff, v. PIEDMONT-FORREST CORPORATION, Defendant-Respondent and Georgia Power Company, United Way Macon and Bibb County, and Macon-Bibb County Convention and Visitors Bureau, Inc., Respondents.

Bankruptcy No. 90-52051, Adv. No. 90-5109.

United States Bankruptcy Court, M.D. Georgia, Macon Division.

March 24, 1993.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Michael Weinstock, John M. Bruce, Atlanta, GA, for Historic Macon Station Ltd. Partnership.

Thomas C. James, III, Macon, GA, for Georgia Power Co. and Piedmont-Forrest Corp.

ROBERT F. HERSHNER, Jr., Chief Judge.

STATEMENT OF THE CASE

Piedmont-Forrest Corporation filed a complaint on September 11, 1990. Piedmont-Forrest amended its complaint on September 24, 1990. Historic Macon Station Limited Partnership, Debtor, filed its response to the amended complaint on October 11, 1990. Old Historic Macon Station Corporation also filed its response to the amended complaint on October 11, 1990.

On the same day that Piedmont-Forrest filed its complaint with the Court, Debtor filed a complaint entitled "Complaint Seeking Declaratory Judgment Regarding Continuation of Leases; Motion to Assume Executory Leases." The complaint was against Georgia Power Company and Piedmont-Forrest.¹ Georgia Power and Piedmont-Forrest filed their responses to Debtor's complaint on October 11, 1990.

The Court consolidated the two adversary proceedings by order dated April 23, 1991.

Debtor filed a counterclaim against Georgia Power and Piedmont-Forrest on October 28, 1991. Georgia Power and Piedmont-Forrest filed their responses to the counterclaim on November 5, 1991.

A trial was held during the week of May 11, 1992. The Court, having considered the evidence presented, the arguments of counsel, and the briefs of counsel, now publishes this memorandum opinion.

FINDINGS OF FACT

Georgia Power is a supplier of electricity in the State of Georgia. It leased space for its Macon Division office in the Charter Medical building. Midway through the thirty-year lease term, the lessor offered to buy the remainder of the lease term.

Georgia Power purchased from the City of Macon (the "City") a building known as the Macon Terminal Station (the "station"). The station previously was a railroad terminal. The station and its covered platform occupy about three acres. Georgia Power also purchased three acres of land adjacent to the station. The total purchase price was $400,000 and the transaction date was July 29, 1982. Georgia Power planned to move its Macon Division office to the station. The station is listed on the National Register of Historical Places. Renovation plans must be approved by the United States Department of the Interior.

Georgia Power employed the architectural firm of Dunwoody Beeland & Henderson to prepare renovation plans. Georgia Power spent $4,000,000 renovating the exterior and part of the interior of the station. Georgia Power then decided another party should complete the renovation.

Tate Ogle is a real estate developer who specializes in downtown redevelopment partnerships. Mr. Ogle and Timothy Anderson met with representatives of Georgia Power in 1983. Mr. Ogle and Mr. Anderson considered forming a limited partnership to finish the renovation of the station.

In October of 1983, Georgia Power asked several developers to submit proposals for renovating the station. The information brochure set forth that Georgia Power would retain fee simple ownership of the station. Georgia Power would exercise certain controls over design and usage of the station and the adjacent land. All renovation work had to meet "The Secretary of Interior's Standards for Rehabilitation." Only two developers submitted proposals; namely, the Ogle/Anderson group and the Cranston/Ascronics group.

Georgia Power completed a review of both proposals on February 10, 1984. Georgia Power had a number of objectives, including:

(1) Completing the project within Georgia Power\'s budget and minimizing cost;

(2) Obtaining first-class office space for the Macon Division;

(3) Providing positive public relations in downtown Macon;

(4) Revitalizing downtown Macon;

(5) Allowing Georgia Power to share in the developer\'s profits; and

(6) Historic preservation of the station.

Georgia Power's review report noted the following features of the two proposals:

                Analysis Factor             Cranston/Ascronics          Ogle/Anderson
                Investment Tax              $900,000                    $900,000
                Credit received
                by the developer
                and lost by
                Georgia Power
                Ownership                   Georgia Power               (1) Ogle/Anderson
                                                                        (2) Georgia Power
                Responsibility              Georgia Power               Ogle/Anderson
                for ad valorem
                tax
                Growth space                Not available               Mezzanine expansion
                for Macon                                               would be available
                Division office
                Market                      Compete with                Compliment specialty
                                            specialty shops             shops on Cherry
                                            on Cherry Street            Street
                

The review committee recommended that Georgia Power negotiate a contract with Ogle/Anderson. Ogle/Anderson was interested only if the proposed limited partnership could acquire ownership of the station so the limited partners could receive certain investment tax credits and depreciation credits. Georgia Power, however, was concerned that its public image would be damaged if it sold the station. During the negotiations, Ogle/Anderson was assisted by William Campbell of Investment Services Incorporated, a Boston real estate syndication firm. Ogle/Anderson was represented by a New York law firm. Georgia Power's counsel was John Griffin. After several months of negotiations, Georgia Power and Ogle/Anderson reached an agreement.

Mr. Ogle, Mr. Anderson, and Allan Koch formed a partnership known as Historic Macon Station Limited Partnership, the Debtor in this bankruptcy case. Thirty-three limited partnership interests were sold for $109,000 each. These contributions were payable in installments over six years. The initial structure of the limited partnership was as follows:

Historic Macon Station Limited Partnership (Debtor) | | -------------------------------------------------- | | | | Limited Partners: General Partner ISI Investment Associates X Limited Partnership Urban Properties I, Ltd. (Michael J. Dowd, General Partner) 33 limited partnership interests @ $109,000 each ----------------------------------------- | | | | Limited Partners General Partner S.F.B. Capital Corporation Urban Partners I, Ltd. B. Tate Ogle | Allan J. Koch | J. Timothy Anderson | | Limited and General Partners B. Tate Ogle Allan J. Koch J. Timothy Anderson

The Investment Memorandum² sent to prospective limited partners stated, in part:

2. Characterization of the Partnership and GPC as Joint Ventures

. . . .

Special Counsel believes there are several significant facts that indicate the Partnership and GPC should not be treated as joint venturers for federal income tax purposes. First, the parties do not intend to act as joint venturers with respect to the Property. The absence of such an intention will be demonstrated objectively. The Partnership and GPC will not hold themselves out to others as co-venturers; they will not share in managing the Property; they will not share in the net profits, if any, derived from the Property; and they will not file an annual federal income tax return as though they were joint venturers.

Second, the various relationships between the Partnership and GPC established under the Station Agreement, the GPC Sublease, the Development Agreement and the Land Agreement will be traditional vendor-vendee (see "Treatment of the Partnership as the Equitable Owner of the Station"), debtor-creditor, employer-independent contractor and lessor-lessee relationships. The mutual obligations arising out of each of these relationships are generally inconsistent with the concept of a joint venture. . . .

. . . .

Of the economic arrangements between the Partnership and GPC, the single factor which weights most strongly in favor of joint venture status is the method for determining the consideration to be paid by the Partnership in 30 years for the Land should the Partnership exercise its purchase option (or should GPC require it to do so) with respect to the Land. The option price is an amount equal to 42.5% of the Property's value in 30 years. The IRS might contend that, because the Property consists of both the Land and the Station, the latter of which the Partnership will already own at the time the Partnership acquires the Land, GPC will in effect be sharing in any post-acquisition appreciation (or suffering post-acquisition depreciation) in the value of the Station.

Special Counsel believes that the parties will not be considered joint ventures as a result of the relationship between the Land option price and the value of the Station. First, for a period of at least 30 years from the Closing Date, the Partnership will have the benefits and burdens of ownership with respect to the Station. (See "Treatment of the Partnership as the Equitable Owner of the Station".) Thus, for example, if the Station were destroyed or condemned during that period, the Partnership would be the party that would economically sustain the loss, if any, with respect to the Station. The mere fact that the Partnership could possibly recoup a portion of that loss by acquiring the Land at a price lower than it would have paid if the Station had instead appreciated is not sufficient to justify treating the Partnership and GPC as joint venturers. Furthermore, the Station will be more valuable to the Partnership

...