Lately, it appears as if bad news is following Opus Corp. around every corner. As reported earlier this month, the company’s Southern division, Opus South, filed for Chapter 11 bankruptcy protection and its Western division, Opus West, was considering filing for Chapter 11. Now, it’s official: Opus West Corp. has officially filed for Chapter 11 bankruptcy. And on the heels of that announcement, Opus East Corp. has filed for Chapter 7 liquidation.
Citing declining commercial real estate values and persistently poor credit market conditions, Opus West and four of its subsidiaries decided it was best to proceed with bankruptcy filings in order to protect themselves from their 200 to 999 creditors. According to court filings, Opus West and its subsidiaries reported $1.28 billion in assets and $1.46 billion in liabilities.
In a statement released to the press, John Greer, chief restructuring officer for the Phoenix, Ariz.-based firm, says the Opus West division began to slow some of its development projects almost two years ago in anticipation of a declining market. “We must now take additional measures to enable an orderly wind down of our portfolio, protect asset values, and maximize returns on lenders’ investments,” he says.
Instead of altogether exiting its market, which is what Opus South chose to do, Opus West asserts that the company will maintain a “modest” presence in the region to work on asset dispositions and transitions. The Opus Corp. subsidiary is scheduled to auction some of its Dallas and Austin area holdings in late August.
Meanwhile, Opus Corp.’s Eastern division, Opus East, faces more complex financial struggles. The Washington, D.C.-based firm decided to file Chapter 7 weeks after handing over its development rights to a 2 million-square-foot business complex for the U.S. Army. Baltimore-based development firm St. John Properties took over the project. Bankruptcy court filings show the company has $237.9 million in assets and $501.7 million in liabilities. Opus East reportedly earned $106.58 million in 2008 and posted earnings of only $17 million at the end of June.
The company cites unpaid wages from the U. S. General Services Administration as a major cause of the firm’s distress. Opus East was hired to develop a 268,700-square-foot office building for the National Oceanic and Atmospheric Administration’s Center for Weather and Climate Prediction in College Park, Md. According to court documents, Opus East says GSA refuses to pay the $35 million bill and is “unilaterally requiring Opus East to finance the cost of development approximately 340 percent in excess of what was originally agreed.” “They refuse to pay the bill,” says Winston Hewett, director of public relations for Opus Corp. GSA could not be reached for comment.
Mike Kelly, president of Denver-based multifamily restructuring company Caldera Asset Management, says Opus Corp.’s situation is to be expected because they were in over their heads. “They got away from what they did best, which was commercial real estate. They got into the apartment and condo industry and started doing these huge developments. Sure, the other commercial projects weren’t making any money, either, but the apartment and condo stuff is what did them in. They just stretched themselves too far. It was an utter disaster,” he adds.
As for the parent company’s other two divisions, Opus North Corp. and Opus Northwest Corp., company officials say those offices are doing just fine. They claim the Northern and Northwest markets have been less affected by the economic and capital market conditions thanks to a more diverse mix of projects. Both divisions are currently pursuing and completing new development and construction projects.
The future may not be as grim as some would think. Kelly thinks the development giant can bounce back from this rocky patch. “It’s extremely challenging to recover from this kind of situation. This was a major hit to their balance sheet and their reputation. If they reorganize, they can come out leaner, more efficient, and focused,” he says.
