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Sale of North Bay offices, apartments involved in Ponzi scheme nears finish line

A large portfolio sale of commercial and apartment buildings in Marin and Sonoma counties moved a step closer to reality, as a San Francisco real estate investor emerged as the sole bidder on five dozen properties involved in the late Ken Casey’s sizable Ponzi scheme.

No qualified higher bids to Hamilton Zanze & Associates' $434 million offer to buy 60 of the 70 related properties (PDF) were received by the Sept. 7 deadline agreed upon in bankruptcy proceedings. That didn’t sit well with some creditors that thought a higher sale price could have been sought, according to court documents.

If completed as currently structured, it would be the largest commercial property deal in the North Bay since Basin Street Properties sold 1.44 million square feet of office space in Sonoma and Marin counties 16 years ago.

The final price at this point for the Casey portfolio is expected to go up slightly because the deal likely will take longer to close than Hamilton Zanze originally agreed to.

“We’ve had this pivot in the case,” Ori Katz, a Sheppard Mullin Richter & Hampton attorney for the debtors told Judge Hannah Blumenstiel at the Wednesday virtual hearing at which the sale originally was scheduled to be finalized.

That “pivot” relates mainly to the mechanics of closing the transaction since a late swap-out of the title company that would be handling it, Katz explained in a Sept. 12 filing. Chicago Title Insurance had been working on the sale of properties for months but pulled out just before the sale plan was submitted to the court, and a replacement title company is working on remaining details.

Katz represents Casey’s Professional Financial Incorporated and related investment firms. They were forced into Chapter 11 bankruptcy in mid-2020 after private and Securities & Exchange Commission audits following Casey’s death that May detected the skimming of $330 million dollars from about 1,300 investors.

In mid-August, Hamilton Zanze emerged as the “stalking horse,” or approved first bidder, on the properties out of three dozen prospects handled by sale manager FTI Consulting.

Closing the transaction still requires getting consent for the sale of properties where there were tenant-in-common investments or court authorization to move forward if consent can’t be obtained, Katz wrote. Those are handled with legal actions called adversary proceedings, and seven are underway in the number of cases consolidated in the bankruptcy court. Those situations are expected to be resolved by the second half of October, according to Katz.

Another key matter being worked out is an amendment that would increase the purchase price by $2.5 million, to $436.5 million. Competing bidders would have offered at least $442.7 million to send the sale to an auction, originally set for Sept. 13.

The closing of the portfolio sale now is expected to be in November at the earliest.

Before his death, Casey oversaw an operation that grossed $12.6 million in revenue the previous year from management of investments in a portfolio of 600,000 square feet of commercial space and almost 900 apartments, valued at the time of the Chapter 11 filing at $555 million, the Business Journal reported.

Some weren’t pleased with the lack of higher bids for the portfolio, Katz wrote.

“The news that no overbidder submitted a qualified bid was deeply disappointing to the Debtors and their professionals, but that disappointment paled in comparison to the feelings experienced by many of the investors,” the filing said. “Nonetheless, the Debtors are confident that the marketing process was robust and are preparing a declaration, to be filed within a week, detailing the sale process and marketing efforts undertaken.”

One of the unique features of this property deal is that it includes both commercial space, mainly smaller office buildings, and apartment complexes, according to Haden Ongaro, who runs North Bay operations for commercial real estate services company Newmark. Buyers often are interested in office or residential but not commonly both, he said.

Yet multifamily-property-focused Hamilton Zanze & Associates has a commercial property affiliate, Graham Street Realty.

Bankruptcies that involve assets such as real estate often involve selling it then reconciling claims. In this case, there were 1,500 accounts involved, including multiple investment accounts held by the same people or entity, so the property sale and the claims tasks normally done after the transaction are being handled at the same time, according to Pachulski Stang Ziehl & Jones’ Debra Grassgreen, counsel to the official unsecured creditors committee.

“After sending out the 1,500 notices and after having individual one-on-one (meetings) … we think at most we have about 35 claims that aren't reconciled,” Grassgreen told the judge Wednesday.

Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at jquackenbush@busjrnl.com or 707-521-4256.

This story has been updated with explanation on Hamilton Zanze & Associates’s multifamily and commercial property interests.

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