Unfortunately, given the economy and the poor state of the real estate market, the sale of the 4 real properties, the estate's only substantil assets, has not been as fruitful as initially believed in mid-2007. At the beginning of this case, there were appraisals suggesting substantial value in this case available for unsecured creditors through the sale of the real properties. However, since that time the value of real estate, especially in these areas, has drastically fallen. Whether any distribution is ever possible is highly doubtful in light of the drastic decline in asset values.
The current state of the properties is as follows:
Watsonville: The Debtor valued the Watsonville property in June 2007 at $4,475,000, but subject to liens totaling approximately $1,900,000. After expenses and debt service, the property had about $6,000 a month in excess cash from the rents. The Watsonville property was initially listed for sale almost a year ago at $3,950,000. The Trustee received an offer for $2,900,000 many months later and a deal was struck for $3,000,000. However, that sale fell through. But the Trustee was successful in getting a bid from the tenant and the sale closed in March for $3,075,000, resulting in about $790,000 for the estate. The Trustee then used this money to pay remaining administrative fees for the estate, according to the Bankruptcy Code.
Salinas: The Salinas property was valued at about $4,290,000, subject to approximately $1,625,000 in liens, generated no income, and was cash negative at about $22,000 a month. The Trustee listed the Salinas property for sale at $4,200,000 and first negotiated a sale at $4,100,000, which fell through. The price was then reduced to $3,950,000 and then to $2,950,000. The Trustee had numerous negotiations for the sale of the Salinas property, but all sales fell through. The Trustee's recent proposal for $2,500,000 has also recently fallen through and the Trustee has indicated he has no alternative but to abandon this property. This will wipe out the estate's most significant asset.
Hollister: The Debtor valued the Hollister property at $1,350,000 and it was subject to about $700,000 in secured debt. Monthly income from partial occupancy was about $1,025 but the debt service was about $5,200. The property was listed for sale at $1,150,000, but the Trustee received no interest. It was then dropped to $995,000, but again, received no interest. Given the amount of debt on the property and its monthly negative cash flow, the Trustee moved to abandon the Hollister property and the Court granted the motion.
Gilroy: The Debtor valued the Gilroy property at $880,000 with a lien of $350,000. The property is vacant and generates no income. The monthly debt service to the secured lender is about $4,712 per month. The Gilroy property is an un-reinforced masonry building in poor condition and may not be sold or leased without expensive earthquake retrofitting. The property was listed for sale at $995,000 but received no interest in the property. It appears to the Trustee that the Gilroy property can be sold, if at all, if the secured lender reduces its debt by a substantial sum. Considering the monthly expenses and issues with property insurance, the Trustee has indicated he will soon look to abandon the Gilroy property if no buyer is found.
Additional facts compound the problem of recovery for the Bruhn estate from any sale of these preoperties. First, except for the Salinas property, Mr. Bruhn did not own a 100% interest in these properties. Rather, he owned an interest in the parnerships that owned the properties. And, because of the substantial negative in Mr. Bruhn's capital accounts, the Bruhn estate would actually get much less than his ownership percentage indicates. The sale of the properties also trigger capital gains taxes which also affect the amount recovered.
