Bankruptcy of Commercial Buildings

Commercial buildings, or more accurately, the bankruptcy of the joint venture or other entity that owns the building presents a particular problem because commercial building bankruptcies are normally single asset bankruptcies. Single asset bankruptcies are treated differently in Chapter 11 than other businesses. They are more difficult. Because of this, the speed of the bankruptcy is important, so posturing early on can be most helpful.

In the case of a building in downtown Dallas that the undersigned represented, a precipitating cause of the bankruptcy was the Chapter 7 of a tenant. When this happens with a large tenant, even properly perfected landlord liens and seizures of assets, cannot replace the all important cash flow. Thus, from the perspective of the landlord, a hard line approach can sometimes be the least financially beneficial. Rather consider a workout, possibly where the landlord takes a percentage and obtains a very clearly defined agreement for vacation under certain circumstances.

Like the contractor who pays the bidder based upon how many jobs he writes, the commercial building that pays the broker in full upon execution of the lease is rewarding someone not for the true value of what is sold, but for the selling of it. There are any number of ways to structure a deal, and paying someone to say whatever needs to be said to make the deal - or paying them to conceal the true nature of what they are selling you - is probably not the smartest.

Bankruptcy lawyers, by definition, end up with the deals that went wrong, so cynicism is not entirely uncommon with our lot. On the other hand, we see what we see, and this particular bankruptcy lawyer happens to believe that it can happen to anyone, especially to someone who is not careful.

Charles Chesnutt