Bankruptcy and Commercial Real Estate and Legal Issues and Lauth Property Group and Banking & Finance and Project Funding and Development/Redevelopment and Law and Real Estate & Retail

Lauth revival hinges on judge approving settlement

September 4, 2010

A proposed settlement following a nasty 15-month battle in bankruptcy court has Bob Lauth feeling optimistic about his company’s prospects.

The deal with financial backer Inland American Real Estate Trust, reported Sept. 1 on IBJ.com, would leave Lauth Group with fewer properties but a more manageable debt load. Affiliates of the companies came to terms on the 39-page deal, filed with the U.S. District Court for the Southern District of Indiana, with help from a special mediator.

The principals in Lauth, including CEO Bob Lauth, have invested $20 million so far to recapitalize the company in bankruptcy (including at least $5 million for legal fees) and expect to spend about $5 million more. The company has reworked or is reworking project-level loans on each of 37 properties it would retain in the agreement with Illinois-based Inland.

Bob Lauth mug Lauth

Company officials also hope to start hiring again in the near future to begin rebuilding what was once the nation’s 13th-largest real estate developer. The company now employs 40, down from a 2008 peak of 450.

“By nature I’m a positive, glass-is-half-full person,” said, Lauth, 59, the company’s chairman and CEO. “I did not know how this was going to turn out, and until the court blesses it, it isn’t over. But I’ve always felt we were on the right side of this argument and we would ultimately be treated fairly.”

Under the deal, Lauth would keep 37 existing properties, with 5.1 million square feet of space and more than 1,000 acres of land ready for development when the market picks up again. Among the properties it keeps are the Intech office park in Indianapolis and the office complex that serves as headquarters to NASCAR in Charlotte, N.C.

In exchange, the company would give up control of six properties totaling 700,000 square feet and pay Inland $1 million.

Before the settlement, Lauth had ceded control of eight of its properties, including its former headquarters in Meridian Corporate Plaza, a Class A office complex just north of Interstate 465 between Meridian Street and College Avenue.

The new agreement has Lauth giving up control of a third building in Meridian Corporate Plaza, along with properties in Illinois, South Carolina and Florida.

The settlement represents the ideal outcome for a bankruptcy reorganization case: The debtor emerges as a restructured entity that continues to employ people and pay taxes, said Henry Efroymson, a partner in the local law firm of Ice Miller who was not involved in the case.

That’s the intent of Chapter 11, but many cases wind up with companies’ liquidating assets, Efroymson said. In the case of Lauth and Inland, each side gave some and gained some.

“Lauth comes out with a smaller footprint and a much more manageable debt structure,” he said. “They’ve lost several attractive properties to Inland through this negotiated settlement but have managed to retain a number of high-profile properties that gives the reorganized company the ability to build its portfolio on solid footing.”

Inland spokesman Matt Tramel said in an e-mail that the company is pleased with the settlement and ready to move on.

“In addition to the eight properties that were previously received, this represents a significant portion of the value of the entire Lauth portfolio,” Tramel wrote. “(Inland) looks forward to exiting its relationship with Lauth and focusing on maximizing the value of the properties.”

Affiliates of Lauth and Inland have been feuding for almost two years over Inland’s 2007 investment of $228 million in dozens of Lauth properties. Lauth defaulted on its agreement to pay dividends to Inland in late 2008, leading Inland to attempt to take control of several Lauth properties. Lauth responded by putting multiple subsidiaries—representing about 60 properties—into Chapter 11 bankruptcy in May 2009.

Lauth’s troubles began in early 2008 as demand dried up for the office, industrial and retail developments that had fueled its rapid growth. The company doubled its revenue from 2004 to 2005, then doubled it again from 2005 to 2006. During the same period, the value of Lauth’s project lineup jumped from $143 million to $592 million.

Other creditors will have an opportunity to express reservations about the deal before bankruptcy court Judge Basil H. Lorch III considers it at a hearing Sept. 14 in New Albany.

Lauth Investment Properties LLC, a holding company for the firm’s real estate, is the main company in bankruptcy. Lauth Group Inc., an umbrella company that handles development and property management, did not file.•

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