Photos assembled by the Bank of America Plaza's biggest tenant, the Wright Lindsey & Jennings law firm, show areas of disrepair in the 52-year-old building, including water damage from flooding in February.
Editor’s note: An update on the legal battle between the Wright Lindsey & Jennings law firm and the owners of Bank of America Plaza is at the bottom of this story.
After nearly five years in bankruptcy court, a bankruptcy trustee for the 32 owners of the Regions Center in downtown Little Rock is preparing to sell the 30-story skyscraper.
The Chicago real estate and investment firm JLL will handle the sale, but a representative offered no further details last week.
“The building is coming to market, but we aren’t able to comment at this time,” JLL spokeswoman Kimberly Steele told Arkansas Business in an email.
One of the tallest in the city, the building at Capitol Avenue and Broadway is owned by more than two dozen LLCs using names including NNN 400 Capitol Center.
Percentage of ownership ranges from 0.9% to 9.25%, and the owners’ bankruptcy cases, which were administered jointly, were converted in March from a reorganization to a Chapter 7 liquidation in U.S. Bankruptcy Court in Delaware.
In a September court filing, the case’s Chapter 7 trustee, attorney Don A. Beskrone of Wilmington, said he had hired JLL to help market and sell the 547,000-SF property.
“The Trustee is in the process of investigating the Debtors’ assets with the intent of maximizing value for the benefit of creditors,” the Sept. 23 filing said. “As a result of his investigation, the Trustee has determined that it is in the best interest of the estate and creditors to sell the Property as a going-concern.”
A former attorney for the building’s owners referred all questions to Beskrone, who did not return calls for comment. “We have not been involved in the representation of the owners since September 2020,” the lawyer, Mark Rubin of Rubin & Rubin of Jacksonville, Florida, said in an email.
In September 2020, Rubin & Rubin was disqualified from representing the debtors, with U.S. Bankruptcy Judge John T. Dorsey finding that the firm had “committed numerous ethical violations, disregarded the disclosure requirements of the Bankruptcy Code and Rules, made false sworn statements of fact in connection with its retention, and disregarded the orders of this Court.”
The judge ordered that the firm return all the fees paid to it or to be paid to it in connection with its work for the debtors.
“Judge Dorsey’s Order is under appeal because we do not agree with his opinion,” Rubin wrote to Arkansas Business.
Meanwhile, at BOA Plaza …
Meanwhile, the owners of another Little Rock skyscraper are in a lawsuit with its major tenant over alleged delinquent rent and late fees. 200 West Capitol LLC, a California investor group that owns the 24-story, 290,680-SF Bank of America Plaza, is suing the Wright Lindsey & Jennings law firm to collect $3.3 million for delinquent rent, late fees and the full payout on the firm’s lease, which expires on July 31, 2025.
The law firm denied allegations of wrongdoing and filed a counterclaim against the owners for not completing negotiated repairs and maintenance on the building, which triggered a rent abatement clause in the lease agreement. (See Law Firm, Landlord Battle in Lawsuit.)
The court cases come at a time when commercial real estate values have returned to pre-pandemic levels in many U.S. markets, according to commercial real estate services and investment firm CBRE Group Inc. of Dallas. The recovery began at the end of 2020 and continued throughout the first half of 2021, CBRE said.
Chris Ludeman, global president of capital markets for CBRE, credited government stimulus money in response to COVID-19 for stabilizing the economy and helping property values.
“While some uncertainty remains, a strong economic recovery will continue to benefit property fundamentals, investment volumes and values,” Ludeman said in a news release.
‘Sale to the Next Fool’
In August 2006, the 32 Capitol Center LLCs borrowed $32 million from the Bank of America to buy the Regions Center. The mortgage was quickly sold to LaSalle Bank of Chicago. In 2008, LaSalle assigned the mortgage to Wells Fargo Bank. Wells Fargo is the trustee for a pool of investors with the confoundingly complicated legal name of the Registered Holders of COMM 2006-C8 Commercial Mortgage Pass-Through Certificates. In 2017, the loan was sold to a trust called Little Rock-400 West Capitol Trust in New York, which is owned by Taconic Capital Advisors LP of New York.
Before the final, nearly $30 million loan payment was due on Sept. 1, 2016, the owners tried to refinance their loan or sell the building, according to an October 2020 filing by attorneys for Little Rock-400 West Capitol Trust and Wells Fargo Bank in its capacity as trustee.
“Those efforts were unsuccessful because, among other things, Debtors could not reach agreement on whether to sell or refinance the Property, and did not in their minds, obtain viable sales offers,” the filing said.
The owners decided to try to refinance the loan. One of the owners said to the property manager that “even if the refi doesn’t work out and the bank takes the property back, … it is worth the risk,” according to the filing by attorneys from the law firm Duane Morris LLP of Philadelphia. Attorneys from the firm didn’t return calls for comment.
One of the building’s owners also said that “the original deal was predicated on continued appreciation, then sale to the next fool,” according to the filing, which didn’t name the owner.
In April 2016, about four months before the final loan payment was due, the owners hired Mark Rubin, the attorney from Jacksonville, Florida, to represent them in their refinancing. Rubin knew that refinancing the loan would be “risky,” “very complicated” and a “roller coaster,” the filing said. The loan wasn’t refinanced and the owners defaulted.
Foreclosure Suit
In November 2016, the lender filed a foreclosure lawsuit in Pulaski County Circuit Court against the owners and wanted a receiver appointed.
At the time, the bank alleged $29.6 million was owed on the property. “We don’t deny that we owe money on the loan,” Rubin told Arkansas Business in 2018. “What’s in debate is how much is owed.”
On Dec. 9, 2016, the day before a hearing to appoint a receiver, 24 of the 32 owners filed for Chapter 11 bankruptcy reorganization, which put the Pulaski County case on pause. The remaining owners filed for Chapter 11 in 2017.
The bankruptcy strategy was to keep options open and give the owners time for the refinancing, the lenders’ filing said. The lenders said they tried to settle the defaulted loan, but Rubin wouldn’t accept the terms.
Instead, in 2018, the owners filed a lawsuit in bankruptcy court against Wells Fargo and the two companies that serviced the loan, accusing them of intentionally creating obstacles that pushed the owners into default in 2016. The owners said in the suit that Wells Fargo and its commercial mortgage servicers — LNR Partners Inc. of Miami Beach, Florida, and Berkadia Commercial Mortgage LLC of New York — wanted the owners to default so the companies would “recover massive penalties” from them. The owners also alleged that the companies wanted them to lose their equity in their property.
Converting to Chapter 7
In August 2020, a judge ruled in favor of the lenders on all counts except for one, which the judge found was moot.
The lenders asked that the case be converted to a Chapter 7 in October 2020. The lenders’ October 2020 filing said the unpaid principal balance is more than $30 million, while the value of the property is $31.46 million.
“The Property’s loan to value ratio is therefore insufficient to warrant a refinancing as Debtors would need to borrow more than the value of the Property to repay their indebtedness,” the lenders’ filing said.
The judge agreed. And in March, the case was converted to a liquidation.
Regions Center
400 W. Capitol Ave., Little Rock
Income Statement
2019 |
Jan.-Aug. 2020 |
Jan.-Aug. 2021 |
|
Total Revenue |
$7,834,432 |
$5,497,228 |
$5,545,643 |
Total Expenses |
$7,683,917 |
$4,487,623 |
$5,225,393 |
Net Income |
$150,515 |
$1,009,605 |
$320,250 |
Source: NNN 400 Capitol Center LLC’s filings in U.S. Bankruptcy Court in Delaware
Little Rock Law Firm and Its Landlord Battle in Lawsuit
The owners of the Bank of America Plaza in Little Rock and its major tenant, the Wright Lindsey & Jennings law firm, are in a legal battle over rent and the building’s condition.
In August, 200 West Capitol LLC, a California investor group, sued the firm, one of Arkansas’ largest, to collect $3.3 million in outstanding rent, late fees and the full payout on the firm’s lease, which expires on July 31, 2025.
In a lawsuit filed in Pulaski County Circuit Court, the owners said that they are entitled to take back the space in the building because the firm failed to pay rent.
But Wright Lindsey & Jennings argues that it has a contractual right to abate the rent because the owners breached the lease agreement and failed to make promised repairs.
WLJ has been a tenant since the building was built in 1969. The firm leases the top five floors and the 18th floor totaling 52,255 SF for about $65,000 a month.
200 West Capitol bought the building and its seven-story parking deck for $10.2 million in May 2006. The company has since tried unsuccessfully to sell the building.
WLJ said in its counterclaim that the building’s condition has deteriorated since 200 West Capitol took ownership. WLJ said common areas are “no longer comparable with Class A office space in the City of Little Rock, in violation of the terms of the lease.”
The law firm’s filing said the building has problems with water leaks and inconsistent and unacceptable office temperatures, and the condition of the parking garage has worsened.
WLJ said that in February 2020, in order to get the law firm to renew its lease, the owner promised to make repairs. But WLJ said in the suit that improvements weren’t made.
“There are issues with the Building and the Premises on almost a daily basis,” WLJ said.
It said that leaking office windows have not been repaired. Thermostats haven’t been set up to maintain a stable temperature. And cracks and exposed rebar in the parking deck have not been properly repaired.
WLJ said it exercised its right to abate its rent for the months of November 2020 through May 2021. As a sign of good faith, WLJ didn’t abate the rent in June, but it also didn’t waive its right to demand completion of the repair work.
The owners group said in its court filing that it spent more than $400,000 on improvements to the lobby and elevators, windows, thermostats and boiler upgrades.
It said the repair work was substantially complete and in some cases accepted by WLJ, yet the firm withheld a disproportionate amount of rent totaling more than $400,000.
But WLJ said that the boiler upgrades weren’t able to heat the building during cold weather. In February, pipes on the first four floors froze and burst, “causing substantial damage to the building,” the suit said.
WLJ wants a judge to say that the law firm isn’t in default under the terms of the lease and that it can continue to abate the rent until the repairs are made.
The law firm also is seeking an unspecified amount of damages for breach of the lease and for fraud in inducement in connection with the landlord allegedly making misrepresentations about repairing the building in order to have WLJ sign the lease.
A hearing is set for Jan. 10 in front of Pulaski County Circuit Court Judge Herbert Wright on the issue of who is entitled to possess the property.
WLJ is represented by attorneys at its firm and Steven Shults of the Shults Law Firm, which has an office in the Bank of America Plaza. Shults declined to comment.
An attorney for 200 West Capitol, Danielle Whitehouse Owens of the Little Rock firm Gill Ragon Owen, declined to comment.
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