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Regions Center Owners Sue Over $32M DefaultLock Icon

6 min read

The owners of the 30-story Regions Center in downtown Little Rock hoped to refinance a $32 million loan before it became due, but they were thwarted by the companies that handled the loan, a recently filed lawsuit says.

The owners are suing Wells Fargo Bank and two companies that serviced the loan, accusing them of intentionally creating obstacles that pushed the owners into default in 2016. The suit was filed in April in U.S. Bankruptcy Court in Delaware.

The owners said 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.

“It’s the classic case of David and Goliath,” said Mark Rubin of Rubin & Rubin of Jacksonville, Florida, an attorney who represents the owners. The ownership comprises 32 LLCs with a legal name that includes NNN 400 Capitol Center. Each percentage of ownership varies and ranges from 0.9 percent to 9.25 percent.

Wells Fargo declined to comment. And attorneys for LNR and Berkadia didn’t return calls. As of Thursday morning, none of the defendants had filed an answer to the lawsuit.

In December 2016, the owners ended up in bankruptcy court to reorganize after Wells Fargo, acting as a trustee for the trust that held the loan, filed a lawsuit in Pulaski County Circuit Court to foreclose on the 547,000-SF skyscraper. 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 last week. “What’s in debate is how much is owed.”

Last year, 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.

As of Feb. 18, Little Rock-400 said the payoff on the loan was $33.69 million, according to bankruptcy filings. That amount is nearly 14 percent higher than the sum Wells Fargo said was owed, according to the filings.

The owners have also named as defendants Taconic and Somera Road Inc. of New York, accusing them of violating a confidentiality agreement in December 2016 when the owners were looking for a lender to acquire the loan from Wells Fargo.

The owners said they contacted Somera to help find a lender, but Somera allegedly used the information it obtained from them to negotiate the sale of the loan to Little Rock-400, in June 2017.

After the sale of the loan, the owners discovered that Somera “was secretly working in concert with Taconic” when it entered into the confidentiality agreement, the lawsuit said.

“As a result of the joint actions of Somera and Taconic in misappropriating the confidential information, Taconic was able to acquire the loan at a discount and put itself in a position to enrich itself at the expense of the Borrowers,” the lawsuit said.

Attorneys for Somera and Taconic didn’t return calls for comment. They hadn’t filed answers in the case as of Thursday morning.

Meanwhile, in bankruptcy court, the owners in January submitted a plan to reorganize.

“The plan of reorganization is to refinance the property,” Rubin said. “We have several lenders that have already indicated that they’re ready, willing and able to do the refinance.”

The judge in the case, Kevin Gross, however, can’t approve the plan for reorganization until the question of how much money is owed is settled, he said.

Rubin said the trial involving Wells Fargo and the other companies is expected to take place in the first quarter of 2019.

The 34-page lawsuit provides a peek into the owners’ dealings with the servicers of the loan and the owners’ struggles to refinance the loan in September 2016.

Creating a ‘Stigma’
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. 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. Berkadia serviced the loan for Wells Fargo.

Throughout the history of the loan, Wells Fargo and its servicers dealt with the owners unfairly and in bad faith, the lawsuit said. The companies’ goals were to “force the loan into an artificial default so that illegal penalties could be exacted and the equity in the property could be taken for the benefit of Wells Fargo,” the lawsuit said.

The owners accuse Berkadia of being slow to approve requests to use money from a reserve account to pay for things like improvements, repairs and leasing commissions.

“The inability to pay leasing commissions created stress on the property, requiring use of Borrowers’ cash flow for purposes for which it was not intended,” the suit said.

The owners also alleged that Berkadia didn’t pay a leasing agent on time.

“Failure to pay the leasing agent promptly created a stigma on the Property in the leasing market and impaired Plaintiffs’ ability to market and lease that available space through the loss of that leasing agent,” the lawsuit said.

Delay After Delay
Even though the owners missed the Sept. 1, 2016, maturity date, they were pushing forward to refinance the loan with Calmwater Capital of Los Angeles. The owners were ready to pay the default interest and legal fees tied to the default, the lawsuit said.

In order to refinance the loan, however, the owners needed a statement reporting the payoff amount of the loan.

The loan with Calmwater also required a signed lease with the Mitchell Williams law firm, which was planning to lease three floors of the Regions Center, the lawsuit said. Having Mitchell Williams as a tenant would have added more than $5 million in value to the property, the lawsuit said.

The loan with Calmwater was scheduled to close on Sept. 30, 2016.

However, Berkadia delayed giving the owners the payoff statement needed for the new loan closing, even though they had asked for it months earlier, the lawsuit said. The closing of the loan was further delayed by the news that Berkadia was no longer servicing the loan. The new servicer was LNR, which sent a letter to the owners on Sept. 22 informing them of the change.

As of Sept. 28, 2016, the owners still hadn’t received a payoff letter from either Berkadia or LNR. The time needed to refinance was running out. The lease with Mitchell Williams was set to automatically terminate if the refinancing didn’t take place Sept. 30 as scheduled.

On Sept. 28, LNR told the owners it would try to give them the payoff statement as soon as possible, the lawsuit said.

The owners received the payoff statement at 8:08 p.m. on Sept. 30, “after the close of business — at which time it was impossible to close on the new loan as scheduled,” the lawsuit said.

The owners also were surprised to see an “illegal ‘late payment charge’ that added over $1.2 million to the payoff amount,” the lawsuit said.

The late charge also increased the loan debt, making the new loan insufficient to cover the payoff amount, “effectively ending the possibility of refinancing with the new lender,” the lawsuit said. The “illegal” late charge was later removed, the lawsuit said.

The owners are seeking an unspecified amount of damages from the defendants.

“Wells Fargo and the other defendants in the case are denying that they have any culpability for what they did,” Rubin said. “They have the right to dispute it, and that’s why we have courts.”

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