The future of the Statler could be decided next Tuesday. U.S. Bankruptcy Court Judge Carl Bucki will be considering two disparate paths for the landmark property. Would-be redevelopers Mark Croce and James Eagan will be seeking up to 90 additional days to complete a complicated financing deal to undertake a phased rehabilitation of the property. On the other hand, court-appointed trustees have filed paperwork to abandon the property.
Trustee Morris Horwitz and his attorney Garry Graber of Hodgson Russ LLP have made a motion to abandon the Statler Towers. The Trustee was appointed in April 2009 and spent the past twenty months trying to sell the property. Bill Koessler was the successful bidder at an August 2009 auction but could not complete the purchase. The Trustee used Koessler’s forfeited deposits to cover bare bones operating expenses of the building which included winterization and shut down of the building. Remaining tenants were removed and the building was closed and boarded up in February.
Croce and Eagan’s Statler City, LLC signed a purchase agreement for the building in July, the only qualified entity to submit an offer. At the same time, the Trustee requested an alternative order authorizing abandonment of the property if the transaction did not close as a result of the expiration of the due diligence period. Under bankruptcy rules, the terms of sale were put to a public auction to see if anyone else was prepared to make a better offer. No one else came forward and offered anything more.
The due diligence period was originally scheduled to expire on November 15. It has been extended three times as Croce and Eagan continue to seek public funding to stabilize the building. The developers would then invest multiple millions to convert the bottom three floors into a mix of banquet, retail and commercial space. Upper floors would be rehabilitated in future phases as possible office, hotel and residential uses as market conditions dictate.
Outgoing Governor David Paterson has publicly pledged State support toward the $5.3 million needed to repair roofs, fix crumbling exterior terra cotta, and provide a more efficient heating system for the building’s lower floors. State assistance is said to be hinged on the City contributing toward the effort.
The mortgage holder Mohmoud Al Issa’s attorney argued in court last week that the due diligence should not be extended and the deal should be terminated. The terms of sale now in place would relieve the property of the significant $4.5 million dollar first priority lien. If this deal falls through, that lien is still valid and would represent another barrier to getting someone else to step up and save the building from a slow and uncontrolled deterioration.
Just to keep the matter as complicated as possible, the whole issue is now clouded by an international Chapter 15 bankruptcy filed in Manchester, England. The trustee in that matter has requested a voice in the bankruptcy here in the Western District. Fortunately, the terms of sale negotiated by Statler City, LLC were in place before that international intervention. This deal would be protected from the impact of the international bankruptcy complications. If it falls apart, any new effort would have to work through another layer of possible complication to an unknown end.
Meanwhile the Trustee has lost patience and argued against a requested 90-day extension at a December 9th court hearing and threatened abandonment. The Trustee made good on the threat and filed the motion to abandon last Friday which called the property a “burden the Estate cannot afford to carry.”
Factors cited by the Trustee in support of abandonment include:
- The continuing deterioration of the Statler Towers building and the likelihood of further deterioration during the winter of 2010/11;
- The Trustee’s inability to procure liability insurance in excess of one million dollars;
- The continuing accrual of administrative claims against the Estate;
- The absence of any available sources of revenue; and,
- The relative lack of progress made by the Purchaser in securing the financing that it has advised the Trustee it needs in order to close the sale in the sum or approximately $5.3 million dollars.
The Trustee “determined that the Subject Property is of inconsequential value and benefit to the Estate and has become burdensome. A trustee may abandon burdensome, income-draining property pursuant to Section 554(a) of Bankruptcy Code. In approving the Trustee’s motion to abandon, the Court only needs to find that the Trustee made “a business judgment, in good faith, upon reasonable basis, and within the trustee’s scope of authority.”
So what’s going on behind the scenes? Good question. Sources say Graber is “fed-up” with the City. Croce and Eagan’s plan relies on a City contribution towards the $5.3 million stabilization program and the City has been reluctant to commit to any funding. Caught in the middle are Croce and Eagan asking for more time to work on an agreement with City Hall and a new administration in Albany.
Mayor Brown has taken offense at stories saying he’s been too behind the scenes. The City is now at the table, has been appearing in court, and is looking at ways to help. The City has an interest in making sure this deal doesn’t go sideways. There are no other known potential purchasers for this high profile property.
If Statler City’s purchase contract goes away, the mortgage is restored and the building gets tied up in the Chapter 15 bankruptcy case in the UK that the current owner Bashar Al Issa is entangled in. In other words, the building falls into a legal unknown for an indeterminate period of time as it slowly deteriorates along with Buffalo’s image of a City that respects it’s great architecture.