Judge won't grant bankruptcy protection for Packard Square in Ann Arbor

ANN ARBOR, MI - A U.S. Bankruptcy Court judge has dismissed motion for Chapter 11 bankruptcy sought by the developer of Ann Arbor's Packard Square apartment and retail complex.

Judge Thomas J. Tucker, in an Oct. 13 opinion, said he was dismissing the bankruptcy petition sought by Bloomfield Hills developer Craig Schubiner on behalf of Packard Square.

Tucker states the debtor "has no ability to complete the Project, let alone complete and stabilize the Project. That leaves the existing state court receivership as the only viable option for completing and stabilizing the Project."

Other reasons cited include a large margin of risk for existing lien holders when considering a new lender and unreliable estimates for costs and timeline of project completion.

In addition to the opinion dismissing the bankruptcy petition, another ruling made the same day denied the developer's attempt to establish alternative financing to complete the project. CAN IV Packard Square LLC, or Canyon is the secured lender.

Without proper financing required to return Packard Square to the developer from court-ordered receiver McKinley Inc., which has been overseeing project, Tucker wrote that the bankruptcy case "has nowhere to go."

"The Debtor failed to meet its burden of proving, by preponderance of the evidence, that the debt amount owing to Canyon, secured by Canyon's liens, is less than the amounts shown by Canyon's evidence," the order said.

"This bankruptcy case essentially has nowhere to go. This Court is abstaining, in favor of the state court receivership action."

Representatives of Packard Square LLC and McKinley Inc. could not be reached immediately for comment.

Oct. 13 motion by Jessica Haynes on Scribd

In response to last year's receivership order, Packard Square LLC attempted to secure new financing from a different lender and sought to borrow up to $22 million from Ardent Financial Fund to complete the project which would include up to $1 million in costs related to the bankruptcy case.

Details of the $22 million loan were included in the full opinion written by Tucker included in Oct. 13 documents, that said it would take priority over other liens Packard Square LLC has incurred, including construction costs and project costs by contractors and subcontractors.

As a result of the bankruptcy denial, the case is now sent back to Washtenaw County's Trial Court to continue to hear testimony related to foreclosure of the project.

Judge Archie Brown will hold a motion hearing at 1:30 p.m. on Oct. 19 at the Washtenaw County Courthouse to hear from the Packard Square receiver about funding for the continued construction of Packard Square.

Schubiner filed a motion for bankruptcy on Sept. 5 on behalf of the project to reorganize and secure financing to finish the $93.5 million residential and retail development after a Washtenaw County judge approved putting the troubled project into a receivership in November 2016.

Schubiner estimated the project to be worth $93.5 million once completed, and has a value of $73.8 million in its current state, values that were contested during the bankruptcy hearings.

That uncertainty had prompted project investors to file suit out of concern that the project was not proceeding in a timely manner in November 2016, prompting an order to place the project under control of court-appointed receiver McKinley Inc.

Located on the site of the former Georgetown Mall, Packard Square is made up of 249 apartments and roughly 24,000 square feet of retail space in one building, with an underground parking garage.

In a letter included in the bankruptcy filing addressed to James A. Fink, an Ann Arbor-based attorney representing McKinley, Schubiner outlined what he saw as "troubling issues" and "dismal progress" at Packard Square since November 2016, when McKinley took control.

The complaints outlined in Schubiner's letter include:

  • A lack of communication and marketing for the mixed-use building.
  • Work needing to be redone because of errors or quality.
  • Winterizing failures.
  • Budget wastes related to legal fees and security

In turn, the lender alleged failure by the developer to reach construction goals and enclose the building by a certain date to avoid weather damage in court documents referenced by Tucker in his Oct. 13 motion.

Tucker called the developer's comments related to completion of the project "optimistic assumptions" in the Oct. 13 opinion and said evidence for the bankruptcy case were "unpersuasive" while the lender's evidence was more credible.

The developer estimates it would cost around $12 million to complete the project by May 2018 while the lender estimates costs around $19 million and a completion date in October 2018.

McKinley and Canyon filed a joint motion on Aug. 21, seeking an increase amount for the receivership loan from $19.7 million to $37.5 million, as the developer's original budget was "inadequate and unrealistic."

Court documents filed Sept. 5 by Schubiner said Packard Square is about 65 percent complete, while the Oct. 13 motion acknowledged Canyon's statement that the project is 50 percent complete with some work required to be redone because of poor quality.

"The costs to complete the Project were significantly higher because of deficient work done by the Debtor and other specified problems caused by the Debtor," the motion said.

During community meetings with residents living near Packard Square in December 2016 and March 2017, McKinley representatives said they expected to finish the development by the end of 2017 or the first part of 2018.

Tucker noted the development's "inherent uncertainty" in his Oct. 13 opinion not to grant the bankruptcy.

subsequent order filed Oct. 13 prohibits Packard Square LLC and other entities from filing any new bankruptcy cases for two years.

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