Edward Okun, the owner of several bankrupt 1031 exchange intermediaries, is offering to make good on more than $150 million owed to hundreds of investors caught up in the collapse of the groups.
Last month, Okun's 1031 Tax Group and 16 other exchange intermediary affiliates, filed petitions for relief under chapter 11 of the bankruptcy code. Since then, Okun has been negotiating with both the debtors and the unsecured creditors in the case, according to bankruptcy court filings.
Under terms being discussed, a lender (debtor in possession) would fund the debtors, which would in turn pay off the creditors, including possibly paying administrative expenses of the chapter 11 cases and other expenses.
Okun is working with Stillwater Capital Partners Inc. in New York, which runs a series of hedge funds. Stillwater Capital, a U.S. Securities & Exchange-registered investment adviser, provides alternative investment services.
Stillwater is negotiating with JPS Capital Partners, also in New York, which specializes in commercial real estate bridge loans on otherwise hard to fund deals.
Okun, through other of his various entities, including Okun Holdings Inc. and Investment Properties of America LLC (IPofA), would pledge up to all of their material assets to the potential lender in connection with the loan transaction.
IPofA is a full-service real estate investment company that offered qualified investors ownership in institutional quality properties through tenant in common and LLC ownership structures. It acquired under-performing retail, industrial, and light office properties in first and second tier markets throughout the U.S. prior to syndication with the intent of turning them into stable, income-producing assets for investors of all sizes.
Further details of the transaction were to be filed with the court, but were to be filed under seal. Okun, through his attorneys, argued that the "confidential information regarding the Okun Entities’ holdings that, if disclosed in a pleading filed on the public docket, would give competitors to the Okun Entities’ access to confidential and commercial information related to business relationships which are in the process of being negotiated. Such information, if disclosed, would significantly hamper the Okun entities' ability to conduct business, which directly impacts the recoveries of creditors in these cases."
Diana Adams, the U.S. Trustee assigned to the cases has an objection to that request. She argues that real estate information that is otherwise already a matter of public record does not qualify as protected information under the Bankruptcy Code.
While the extent of Okun's real estate holdings is not known, CoStar Group has identified numerous properties identified through public records and CoStar Group databases that are believed to be either owned, managed or leased in part by affiliates of IPofA or other Okun affiliates. We list these properties in
The Watch List, a weekly column of distressed commercial properties, mortgages and corporate news.
News of the deal came at court hearing last week, at which it was also revealed that: Okun has relinquished any control over or management or operational role in the exchange intermediaries; has turned over his passport to his lawyers; and pledged not transfer, encumber or sell any of the assets he would put up as security on the loan without prior notice to the bankruptcy court.
At that hearing, the court also denied a motion to convert the case to a chapter 7 liquidation, at least in part because of the potential for achieving a prompt funding arrangement.
According to attorneys representing some of the creditors, the mood of creditors has been cautiously optimistic. Most parties were prepared to give this "deal" a chance, attorneys said.
The court scheduled a follow up hearing for July 2, 2007, to decide on the plan.
While Okun has been working to settle up in the 1031 Tax Group proceedings, he also reached an agreement with financial services firm First Montauk Financial Corp. to settle four separate lawsuits arising out of the termination of a merger agreement Okun had with First Montauk. Under the settlement, the parties exchanged general releases and Okun affiliates surrendered a potion of his shares in First Montauk.
The deal reduces Okun’s interest in First Montauk to less than 25% of the remaining outstanding shares of common stock. First Montauk has also received an exclusive 60-day option to purchase those remaining shares for $2.5 million. First Montauk also returned a $2 million deposit to Okun, when the deal was first proposed.