On Tuesday, Delaware's Bankruptcy Court cleared the way for Toronto-based Brookfield Asset Management to provide an equity injection to San Diego-based Fairfield Residential by approving the company’s plan of reorganization.
Under the plan, Brookfield will acquire the reorganized operations for around $19 million, according to Reuters. In a sign that Fairfield’s management will stay in charge of the company, the news agency reports that management teams of Brookfield and Fairfield will invest a little more than $28 million to recapitalize the company. The company has about 200 separate projects ranging from undeveloped land to fully operational developments, which total approximately 55,000 units.
The continuity should keep values at steady levels. “Placing assets in strong hands is a good thing for the market in terms of maintaining values and rents,” says Ron Witten, president of Dallas-based Witten Advisors.
The plan brings to an end a tumultuous chapter for Fairfield, whose problems began when the bubble burst in some of the overheated markets in which it was building. It fell victim to falling values and a difficult environment for refinancing. “The Fairfield properties were generally well-planned and -executed, but overleveraged like all their peers when the market corrected sharply,” Witten says. “So, the situation was not so much distressed assets as distressed debt.”
Last December, Fairfield filed for Chapter 11. Fairfield expects to emerge from Chapter 11 protection by August 1, 2010. In a press release, the company said that the investment will allow it to “commence creditor payouts, maintain its property management, asset management, construction services, redevelopment activities, and general partner functions and complete future real estate acquisitions following Fairfield’s emergence from Chapter 11 protection.”
“The court’s confirmation of our plan of reorganization, which follows virtually unanimous approval by our creditors, is a significant milestone in our restructuring process,” said Christopher Hashioka, Fairfield’s president and CEO, in a press release. “With the confirmation of our plan, supported by new equity from Brookfield Asset Management and our long-standing partner, the California State Teachers’ Retirement System (CalSTRS), we are now well-positioned to complete our restructuring as planned, maximize value for all of our stakeholders, and continue to be an active player in the multifamily real estate industry in the future.”
Reuters reported that CalSTRS and a subsidiary of Mitsubishi Corp. will not recover anything for their ownership stakes. The news agency also cited court documents that indicated general unsecured creditors will likely recover 9 cents on the dollar of their claims. It also reported that Brookfield did not buy a joint venture partnerships and a portfolio of low-income housing. Those two assets will be liquidated by a trustee in the future.
While Fairfield gets its plan approved, those out in the industry looking for a fire sale will probably be disappointed, according to Ben Carlos Thypin, senior market analyst for New York-based Real Capital Analytics. “I think it is unlikely they will be selling many (if any) assets unless someone is willing to pay up for them,” he says. “This just continues the narrative of the bifurcation of the market.”