450 B.R. 619
Bankr. N.D. Tex.2011Background
- Debtor FRE Real Estate, Inc. owns Fenton Centre (two office towers, 696,458 sq ft) and Other Collateral (Vacant Land and Thermalloy Building) in Farmers Branch, TX; Bank holds a $60–62M debt secured by these assets.
- Debtor filed Chapter 11 after previously dismissing a prior Chapter 11 as a bad-faith filing and returning most assets to owners; the ISD Contract may provide value for the Vacant Land.
- Fenton Centre has limited current occupancy (~50%) with a major tenant (BCD Travel) vacating; IBM leases exist but may expire, with sublease potential uncertain.
- TCI (and affiliates) previously owned Debtor; post-petition, Pillar and Regis (TCI affiliates) have proposed leases for occupancy and potential equity participation.
- Bank challenges Debtor’s projections, arguing lack of equity and questions about plan feasibility; Debtor contends future leases (HCA, Pillar-Regis) could render the collateral adequate for a reorganization.
- Court must determine whether to lift stay given equity in collatera l, potential reorganization, and whether TCI can fund Debtor’s rehabilitation to preserve unsecured creditors’ recovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the stay should be terminated under 362(d)(2) for lack of equity and need for reorganization | Highland argues Debtor lacks equity and reorganization is unlikely. | Debtor argues potential future value with leases could yield a meaningful reorganization. | Not today; stay not terminated under 362(d)(2) given potential value and reorganization prospects. |
| Whether the case was filed in bad faith justifying relief under 362(d)(1) | Highland relies on pattern of single-asset, foreclose-aim case with insider-heavy unsecured claims. | Debtor contends real ongoing cash flow and non-insider claims show reorganization feasibility. | Bad faith not established to terminate stay; reorganization possible with future leases and plan feasibility. |
| Whether the Bank is oversecured and how that affects relief | Bank asserts oversecured status supports lift of stay. | Value contested; future leases and ISD proceeds could alter equity; deposits may secure stay. | Not oversecured at present; future value and plan-related considerations may affect treatment. |
| What value should be considered for plan confirmation vs. liquidation purposes | Bank seeks liquidation value to assess lack of equity. | Debtor seeks future going-concern value based on leases in prospect. | Value considered for plan feasibility may differ from liquidation value; plan feasibility preserved if leases materialize. |
| Appropriate use of 362(d) conditioning with TCI funding to preserve reorganization | Deposits by TCI could shift risk; stay conditioned to ensure rehabilitation. | TCI funding could support reorganization; court may condition stay to balance interests. | Court adopted conditional-stay order with deposits from TCI to preserve reorganization while protecting Bank. |
Key Cases Cited
- Little Creek Dev. Co. v. Commonwealth Mortgage Co. (In re Little Creek Dev. Co.), 779 F.2d 1068 (5th Cir.1986) (bad faith real estate filings as a factor for stay relief or dismissal)
- In re Integrated Telecom Express, Inc., 384 F.3d 108 (3d Cir.2004) (bad faith patterns and fleet of factors in stay relief decisions)
- Trident Assocs. v. Metropolitan Life Ins. Co. (In re Trident Assocs.), 52 F.3d 127 (6th Cir.1995) (one-asset, foreclosure-avoidance cases and bad-faith considerations)
- Laguna Assocs. v. Aetna Cas. & Sur. Co. (In re Laguna Assocs.), 30 F.3d 734 (6th Cir.1994) (bad-faith filing factors in real estate-driven cases)
- Humble Place Joint Venture v. Fory (In re Humble Place Joint Venture), 936 F.2d 814 (5th Cir.1991) (insufficient ongoing operations and asset concentration considerations)
- Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir.1989) (one-asset bankruptcy cases and bad-faith considerations)