Las Vegas apartment operator seeks bankruptcy protection

By Steve Green

Sunday, Dec. 13, 2009 | 7:29 p.m.

Fairfield Residential LLC, which owns apartment complexes in Las Vegas and around the nation, and 14 subsidiaries filed for Chapter 11 bankruptcy protection Sunday in Delaware after defaulting on debt obligations.

The San Diego-based company plans to sell of some of its assets and continue operating as a reorganized, smaller company.

Fairfield blamed the bankruptcy, one of the nation's larger recent commercial real estate failures, in part on the lack of capital needed to refinance and sell investment properties and to fund construction.

It cited declining property values around the country, particularly in Arizona, California, Florida and Nevada, as one of the factors making it difficult to gain financing.

Fairfield said it and a steering committee of lenders have agreed on a framework of a consensual plan of reorganization.

It wasn't immediately clear how much investors in the privately held company would lose because of the bankruptcy.

The company was developed since 1997 with investments from Morgan Stanley Real Estate Fund II, the California State Teachers Retirement System and Mitsubishi Corp., Fairfield said in court papers.

Its key lenders at the corporate level include Capmark Finance Inc., part of Capmark Financial Group Inc., which itself filed for bankruptcy protection in October; and Wachovia Bank, owned by Wells Fargo & Co.

Overall, the top creditors include Wells Fargo, owed $130 million; Bank of America, owed $84 million; and Capmark, owed $79 million.

The reorganization involves concessions by lenders and efforts to raise capital for a new corporate entity called "New Fairfield" that would be cash-flow positive -- while liquidating assets not transferred to New Fairfield.

"Through the proposed plan of reorganization, Fairfield expects to emerge from this process and maximize value for all of our stakeholders by creating a stronger go-forward operating platform and continuing to be an active player in the multifamily sector," the company said in a statement.

Las Vegas-area apartments and land holdings mentioned in Sunday's filings, and their outstanding debt and lenders, were:

--Loreto Apartments, 406 units, $41.6 million, Bank of America

--Palacio Apartments, 333 units, $34.7 million, Bank of America

--Woodmark Apartments, land only, $7.5 million, City National Bank

The company has seven complexes in the Las Vegas area, according to its Web site. They are Liberty Square, Loreto, Mosaic, Mountain Gate, Mountain Trails, Palacio and Villa Serena.

Funding available from commercial backed mortgage securities fell sharply beginning in late 2008 with the collapse of investment bank Bear Stearns, the bankruptcies of Lehman Brothers and hundreds of smaller banks and federal efforts to prop up real estate and insurance industry players Freddie Mac, Fannie Mae and AIG, Fairfield noted in its bankruptcy filing.

"The extraordinary collapse of the capital markets and the economic decline suffered by the real estate industry rendered the debtors unable to refinance their existing obligations or sell their investment properties despite their strong and diversified business model," a Fairfield filing said.

"The inability to find lenders willing to refinance their existing obligations or suitable buyers left the debtors with numerous near-term maturities" -- many of which are now in default, the company said.

"The debtors have suffered significant loss in the value of their investment in properties in the past year, in many cases resulting in assets being valued below their loan balances," Fairfield said, adding the declines triggered several loan defaults.

In some cases, the defaults caused lenders to stop funding construction draws needed to finish work on projects and investors declined capital calls for funding, Fairfield said.

"As a result, the debtors are currently exposed to up to $1.5 billion in payment, completion and other guarantees," Fairfield said.

The company has some 2,000 employees and interests in about 200 multifamily properties around the country. These range from raw land to projects under construction to operational apartment communities.

Fairfield said in court papers that for the nine months ending Sept. 30, it lost $48.7 million on revenue of $506.7 million.

It reported assets of about $958 million and $835 million in liabilities, not counting the potential $1.5 billion in contingent guaranty liabilities.