Commercial real estate and investment firm, Breakwater Equity Partners, filed bankruptcy on two Houston buildings.
Currently, the property includes an 82,821 square-foot, four story office building and an 11,480 square-foot stand-alone restaurant. The property will now be restructured through the bankruptcy process.
The two buildings were purchased in 2007 for $22.35 million by 33 tenant-in-common investors, most of who were mom-and-pop investors. Initially thinking this would be a low risk investment and produce steady monthly dividend distribution, many of the owners placed their entire life savings into the buildings to fund their retirement.
"We would not have purchased this investment if we had been told about the overbuilding in the submarket," said Bruno Vogele, one of the investors. "Most of us are senior citizens who are dependent on this investment for retirement income. We can’t afford to lose our life savings."
The property deal sponsor, Grubb & Ellis, did not disclose that the submarket was significantly overbuilt with considerable new product in the pipeline when the investors purchased the building. As a result of the overbuilding, the vacancy rates rose.
The revenue of the property was no longer sufficient to cover the monthly loan payments and the value of the property plummeted. In early 2012, the distributions to the owners stopped altogether.
"Cypresswood is a classic example of a troubled tenant-in-common property," said Phil Jemmett, Breakwater CEO. "The owners, many of whom are elderly, are the victims of fraud and negligence.
This bankruptcy gives the owners an opportunity to restructure their asset under the supervision of a Federal bankruptcy judge. We are committed to giving these tenant-in-common investors a chance to save their investment."