Developer Patrick Turner got more time to find an investor for his ambitious Westport waterfront project after a creditor filed an involuntary bankruptcy petition Friday against a company that owns part of the property, blocking a scheduled foreclosure auction at the last minute.
It is the second time an involuntary bankruptcy suit stopped an auction of Turner's Westport land, which was used to secure a $30 million loan to his development team in 2007 from Citigroup Global Markets Realty Corp. The loan came due in 2010.
The bankruptcy provides breathing room as Turner attempts to wring a deal out of Citigroup that will allow him to see through his $1.4 billion vision, which called for thousands of homes, two hotels, a skyscraper and a park.
Stein Investment Group, an Atlanta-based private equity firm, said this week it is working with Turner to try to buy the loan's promissory note from Citigroup and hopes to back the project as it moves forward.
"They've effectively bought themselves time," said attorney Alan Grochal, chair of the bankruptcy and creditors' rights department at Tydings & Rosenberg LLP, which is not involved in the case. "I don't know what irons in the fire Mr. Turner may have, but obviously the perception is if he can buy some more time maybe something good will happen."
Two Turner affiliates each own some of the properties that make up the 42-acre site, which lies between the Light Rail tracks and the Patapsco River's Middle Branch.
Citigroup moved against one of the entities, Inner Harbor West II LLC, in January, seeking to foreclose on about 25 acres. An auction was scheduled for 11 a.m. Friday. A Chapter 7 petition Friday by Tiderock Capital LLC alleged Inner Harbor West II owes it more than $2 million for an unsecured loan and legally triggered an automatic hold on selling the property.
The other Turner entity, Inner Harbor West LLC, entered bankruptcy in similar manner last year when two creditors filed an involuntary Chapter 7 bankruptcy just before a scheduled foreclosure auction of the entire property. On Tuesday, Judge Robert Gordon denied Turner's team an extension to file a plan in that case, now a Chapter 11 reorganization, saying he did not see evidence of a possible route out of bankruptcy.
Grochal said Citigroup could seek to have the new bankruptcy case dismissed as a "bad faith" suit, given the business dealings between Turner and Towson-based Tiderock. Friday's filing identifies the creditor's representative as Thomas Fore, who had been working with Turner to find investors for the proposed development and helped with payments that held off foreclosure in 2010.
If the bad-faith argument does not work, Grochal said Citigroup also could ask to have the hold against foreclosure lifted by arguing that the property is not worth what it is owed and there is little likelihood that reorganization will ever succeed.
Attorney Kenneth B. Frank, who has been working with the Turner team to try to negotiate a deal with Citigroup, said the idea that either bankruptcy is a bad-faith filing is "completely wrong," pointing to potential losses should Citigroup foreclose. Frank said Fore is "simply a lender."
"Mr. Fore leant a substantial amount of money to the project to keep it alive and so it's in his best interest for Mr. Turner to succeed so he can be paid back," Frank said. "If the project goes forward they may well have business dealings together. His primary concern right now is protecting his $2 million."
For Turner's part, the developer may present a plan to buy the properties back from Citigroup for their appraised value, Frank said.
The court would decide whether to accept that plan based on feedback from the creditors in the case.
"Mr. Turner's got to do several things. He has to satisfy Citibank in some way because they do have the first lien. Once he does that, he can then work out arrangements with the other creditors," Frank said. "In virtually all the other cases those creditors have an interest in his success and they're worried about just getting wiped out."
Attorneys for Citigroup and Tiderock Capital did not respond to requests for comment. Turner and Fore also could not be reached.