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December 14, 2007
Dear Creditor or Interested Parties,
First, I would like to wish
everyone a wonderful holiday season and a very Happy New Year. I also wish I had more than these best wishes
for you in this case, but realistically, I have no better news nor do I have
any firm projections of any amount or timeframe for distributions. My goal in this newsletter to provide you
with my analysis of the case as it stands today. I know that many of you may have certain
pre-existing expectations about Ed Okun’s portfolio of assets before the Asset
Transfer Agreement. I am beginning to
realize that there is a big disconnect between these high expectations and what
I am uncovering in this case. Having said that, my team and I are exploring
every avenue to stabilize these properties and assets and get the highest
values for them.
I know that for many this case
has been going on for what seems like an eternity and everyone’s patience is
wearing thin. But for myself and my
team, it’s been only a little over month and a half and we promise that we are
doing the best that we can under these difficult circumstances. On behalf of myself and my team, I would like
to thank you for your patience.
Real Estate
As you all know by now, on or
about November 11, 2007, we filed bankruptcy petitions for several of the IPofA
entities: Investment Properties of America, Case No. 07-1362; IPofA 5201 Lender, LLC - Case No. 07-13622;
IPofA Columbus Works LeaseCo, LLC - Case No. 07-13623; IPofA Shreveport
Industrial Park, LLC – Case No. 07-13624; IPofA West 86th Street
LeaseCo, LLC – Case No. 07-13625; 100 Corporate Drive, LLC – Case No. 07-13626;
Crossroads Miami Logistics Center, LLC - Case No. 07-13627; CW Acquisition, LLC
- Case No. 07-13628; Simone Condo I, LLC - Case No. 07-13629; and Simone Condo
II, LLC - Case No. 07-13630.
The real estate portfolio is, of
course, more complicated. We are still
working our way through this portfolio.
As you already know, Ed Okun typically purchased real estate already in
distress and would then attempt to turnaround the property, increase it value
and sell off tenant-in-common interests.
The properties detailed in my prior newsletter have multiple debt
structures – liens on the real properties, liens on the equity in the
properties and tenant-in-common (“TIC”) interests. Mr. Okun’s valuation of these properties was
based upon very optimistic, very best case assumptions that, in many instances (especially
for the industrial warehouse type properties) included a “home run” hit with
the now closed Crossroads transportation operation which was a tenant in
several of the properties as critical piece of the valuation.
Much of our time is spent on
issues related to the marginal, if any, cash flows generated by the
properties. These disappointing cash
flows do not even take into account payment to any TIC interests. I have found that Boardwalk Management
Company, Inc., while previously employed by Mr. Okun, to be independent and
capable at managing these properties. I
have retained them to be my property manager for some of the properties.
We continue to entertain offers
and Deloitte is assessing the properties for me. Deloitte, Robert Davenport, who works with me
in the real estate area, and I have personally visited and toured the
properties at Hialeah, Salina, Shreveport and Columbus, Connecticut and New
Jersey.
Although somewhat preliminary,
the indications are that Mr. Okun generally either paid close to the top of the
market for the properties or certainly managed to finance those properties and
leave little if any equity available for recovery purposes.
On a related note, Mr. Okun’s New Hampshire home (Christian
Cove) which was transferred to us was sold.
The net proceeds of just over $1.6 million are sitting in escrow. However, Mr. Okun’s former counsel, Kluger,
Perez, et al., has claimed all the proceeds because of a lien for legal
services provided to Mr. Okun.
Crossroads
This leads to my next topic –
Crossroads. Crossroads is the trucking company Mr. Okun purchased as a start up
business. The company was run by John Cantrell
who has been established in the trucking industry. Crossroads is no longer operating. We had attempted to work with certain
interested lenders to provide bridge financing (besides the factoring lender
who agreed to continue to lend into the potential bankruptcy situation). Ultimately,
we considered placing the company in bankruptcy to stabilize the company for
sale. However, all parties declined to
fund. In large part, the reason for their hesitancy is that the company was not
only grossly negative cash flowing (in excess of $200,000 per month), had
accumulated outstanding accounts payable of over $1,500,000 and also was really
unable to produce any financial statements or reliable budgetary information. To put it mildly and colloquially, as with most
of Okun’s entities, the accounting was “a bit of a mess.” I sent in Deloitte, Touche to attempt to
assist in getting a handle on the financials but the situation had existed too
long and was beyond repair. Without the necessary financial information and
outside financing, faced with large monthly cash flow losses, we had no choice
but to shut down the company. Crossroads
had grown too quickly and had been without financing too long. Keep in mind that Crossroads didn’t own any
assets. It leased its equipment and
facilities and its receivables were ninety percent (90%) factored and towards
the end, almost one hundred percent (100%) factored. Additionally, Crossroads
owed many of the other Okun entities rent and was unable to meet those
obligations placing those real estate entities in further jeopardy.
I
would like to take this time to voice my heartfelt appreciation to all the
assistance that John
Cantrell and his team had to offer in this wind-down
process. Without their assistance, the
whole ordeal would have been even more painful and messy. We are attempting to pay the employees after
the receivables financer is paid on their debt.
We realize that many were unpaid during this holiday season and that the
situation is dire for many. It was not
anyone’s intention that people are hurt in this process. John Cantrell and Rene Zarate will co-ordinate to achieve as much
payment as possible and at the same time avoid the additonal expenses of yet
another bankruptcy case.
Toys
There have been substantial
developments in this case since the last newsletter. We have managed to sell some of the
toys. We have sold the Bell 800 Ranger
helicopter and have netted over $800,000 for the estate. We have motions to approve the sale of other
“toys.” There is a pending motion for
the sale of the Gulfstream aircraft for $1.0 million. For those of you familiar with aircraft this
might seem low, but also, for those of you familiar with aircraft this is a
1969 airplane which has high total time since last major overhaul and will
require substantial engine work by March of 2008. Additionally, the interior is
in need of a total upgrade. We have sold certain other older vehicles (e.g.
trailer, truck, Dodge Intrepid) for a few thousand dollars. We are entertaining offers for the yacht and
other toys. We have had several offers
for multiple vehicles but none have been accepted as yet. The toys were located in three locations and
we are in the process of consolidating most of them into one location in Florida.
Many of you have attempted to
contact me to propose an offer for one or more of the “toys.” We will soon post the photos of the “toys” on
the website. Please note that Rene
Zarate whose e-mail is
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should be the contact person and his phone number is (813)-875-7774.
Unfortunately, attendant costs of
maintenance are associated with the transfer of these “toys.” For example, the yacht is one of the most
expensive “toys” to maintain – crews are necessary at all times or the yacht
won’t be covered for insurance. The
insurance itself is very expensive. Additionally there is a loan on the boat
for in excess of $8,000,000 which requires monthly interest payments of over $50,000.
We have filed a motion to make these type payments without the need to
constantly go back to the court for approval. Between all of these type costs
and the insurance costs, the yacht costs well in excess of $120,000 per month –
If there are no major repairs….
I am aware of the large
administrative expense already incurred in this case and in an effort to
streamline and reduce expenses; we have filed motions to expedite sales under
$10,000. As previously mentioned, several
vehicles and some office furniture have been sold under this procedure.
Litigation
The surety bonds are of great
interest to the estate and its creditors. We are working on the matter in
co-operation with Committee’s counsel, who had reviewed the bonds prior to my
appointment.
We are aware of litigation
against third parties and Mr. Okun by certain creditors and are following these
proceedings.
Of course, Deloitte has already
commenced its forensic work. It has met
with Huron (financial advisors for the Debtors) and Mesirow (financial advisors
to the Committee) to avoid duplication of efforts. We will be better able to evaluate our causes
of action against third parties after this process.
Criminal Matters
We are aware of the ongoing investigations
regarding the demise of the Company and are cooperating with the authorities on
any requests for information. We do not know the specifics on the status of any
action in this area; however, this is, in fact, standard operating procedure in
criminal matters and those matters are unrelated to the civil matters under
consideration in the bankruptcy court.
As I indicated in the beginning
of this letter, are disappointed at the underlying asset values that we are
finding. Having said that, the acceptance of the assets under the Asset Transfer
Agreement in October was still the right thing to do in that without that
transfer agreement, the only recovery we would be looking at is any potential
recovery from the surety bonds and other litigation claims.
I do wish you all well for the
upcoming year and will continue to pursue every financially feasible avenue in
attempting to recover your funds.
Best Regards,
The 1031 Tax Group, LLC
Gerard A. McHale, Jr.
Chapter 11 Bankruptcy Trustee
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