Irvine’s Bacchus Development has emerged from bankruptcy reorganization with an aggressive sales plan based on the hope that the local commercial real estate market is about to improve.
A Santa Ana bankruptcy judge last month approved a reorganization plan for Bacchus, which has built several hundred smaller office buildings for sale in projects around the Irvine Spectrum.
With court proceedings cleared up, “We can now concentrate on selling the remaining buildings in our office parks,” Bacchus President Steven Bren said in a statement.
About 40 buildings, totaling some 300,000 square feet of space, remain unsold at three company projects: the Bacchus Office Park, Bacchus Signature Series and Jeffrey Office Park. The buildings run from about 5,000 to 20,000 square feet.
A total of 169 buildings were built at the three projects.
The developer’s hoping to sell most of those remaining buildings for $300 per square foot or higher, which would bring in more than $90 million and pay off all of the company’s secured debt.
For that to happen, Bacchus is betting on an improvement in sales and prices before 2012.
Under the reorganization plan, the company has about a year and a half to complete sales at the older Bacchus Office Park and Bacchus Signature Series complexes, and three years to finish sales at its newest project, the Jeffrey Office Park.
The bulk of unsold buildings are at Jeffrey Office Park.
Bacchus offices sold for more than $400 per square foot at the peak of the market a few years ago.
Realistic pricing was one of the main bankruptcy sticking points between Bacchus and its main financier, San Francisco-based Union Bank, part of Japan’s Mitsubishi UFJ Financial Group Inc.
Bacchus filed for bankruptcy protection last September, after falling behind on payments to Union Bank on nearly $55 million in loans.
Including other loans, Bacchus owed Union Bank close to $76 million at the time of the filing.
Union Bank and its appraisers have a more negative outlook on potential sales of Bacchus buildings, telling the court it expected future sales ultimately to trade hands for $177 per square foot, about 40% below the developer’s projections.
The bank’s appraisers also took a negative view about the timing for a recovery in Orange County’s commercial real estate market, saying the market was likely to bump along the bottom for the near term.
Sales Goals
Bacchus officials said they expect to see modest appreciation in prices in the remainder of 2010, with more noticeable improvements in 2011 and 2012.
In approving the reorganization plan, U.S. Bankruptcy Judge Robert Kwan gave the benefit of the doubt to Bacchus.
The plan “presents feasible sales goals and results,” Kwan said in his June 23 decision.
Under the reorganization plan, Bacchus is expecting to sell $35 million worth of buildings in the next year, with an additional $40 million in sales the following year.
Bacchus sold 17 buildings for $31 million in 2009.
Bacchus has the most work to do at its newest development, the 23-acre Jeffrey Office Park, near the Santa Ana (I-5) Freeway and Jeffrey Road.
At month’s end, there still were more than 25 unsold buildings remaining at the 50-building project, which opened in late 2008. Those building total about 170,000 square feet.
If sales at Jeffrey Office Park come in at $300 per square foot, Bacchus could earn profits in excess of $6 million, beyond what is owed to creditors, according to court documents.
So far in 2010, as in 2009, sales have been slower than expected at the office condominium projects. Only four buildings at Jeffrey Office Park sold last year, although as of mid-June, the company had four properties in escrow, which could result in $20 million in sales, according to court documents.
Sluggish sales in 2010 likely are due more to negative publicity resulting from the company’s bankruptcy status, rather than an indication of a still-depressed market, the company told the court.
Creditors voted “overwhelmingly in favor of the plan,” according to Bren.
Bren is the son of Irvine Company Chairman Donald Bren. Bacchus bought the land for its projects from the Newport Beach-based company, but otherwise Irvine Co. isn’t involved with Bacchus.
The size and prominence of Bacchus developments—and the Bren family connection—made the company’s bankruptcy one of the more notable casualties of the local commercial real estate downturn.
In addition to the company’s financial issues, Bren also resolved unrelated criminal charges late last year and was ordered to drug and domestic violence counseling.
Bren is slated to remain in charge of day-to-day operations of the company following conclusion of the bankruptcy case.
Brian Weiss, of Irvine-based advisory firm BSW & Associates, was acting as chief restructuring officer for the company during bankruptcy. He’s now set to become a vice president.
