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Bringing you the most up-to-date news, tips and blogs throughout the web. Here’s your Bankruptcy Update for July 25, 2013 The Wages of  Bankruptcy: Stockton’s Cautionary Tale for Detroit American Roads, Detroit Tunnel Operator, Files Bankruptcy How Bankruptcy Impacts Your Taxes

By C. J. HUGHES To understand how the current office market for technology companies can resemble a Russian nesting doll, with layer upon layer of increasingly smaller subleases, it might help to consider the upper stories of 568 Broadway in SoHo.
In the cast-iron former sewing factory, Scholastic, the publisher, is subletting two floors of space to Foursquare, a social media company. In turn, Foursquare is subletting one of those floors to a handful of other tech firms, including Fueled, which designs apps for phones.
And Fueled has divided its column-lined room as a co-working space, where $650 a month gets a renter a seat and unlimited snacks from jars along a wall.
One of those seats belongs to David Spiro, a self-employed entrepreneur, who sat alone at the corner of a long table on a recent afternoon, a bag of popcorn by his laptop. “I’ve raised some funding,” Mr. Spiro said, “but not nearly enough to afford a typical lease in Manhattan, so this place is great.” The sentiment could also apply to the daisy chain of tenants in his building, and more broadly to the surrounding neighborhoods.
In the last few months, the area of Manhattan south of Midtown has been awash in deals where early-stage tech companies have opted to take over office space belonging to another tenant, rather than enter into a direct lease with a landlord.
These sublet deals are often preferred, tenants and brokers say, because the rents are usually slightly cheaper than conventional leases. They can also be for shorter lengths of time than the typical 10 years and require a far smaller security deposit up front.
As important, they say, is that the spaces usually come built out, which means essentials like high-speed Internet lines, air-conditioning and conference rooms are already in place. Getting up and running quickly is critical for companies or self-starters that often measure growth in months, not years, analysts explain.
Of course, the office within an office within an office can carry risks. If the first, second or third tenant goes bankrupt, a subletter could find itself without a home. But because their own leases are so brief, these low-rung tenants can also easily wind down operations quickly if, say, their app never catches fire.
“They don’t know about the future, so flexibility is key,” said Heidi Learner, the chief economist at Studley, the commercial real estate firm, who is the co-author of a report on the tech sublet trend. “You don’t know about what head count will be, whether you will get any venture capital funding, or whether you will be acquired.”
In general, subletting is becoming more popular. In the Midtown South area, or from Canal Street to 30th Street, sublets accounted for 19 percent of major leasing activity this year, up from 11 percent in 2010, Studley said.
And between January and April of this year, 33 percent of all the leases signed in Manhattan by tech companies — a major driver of the current economy — were sublets, the report said. Sublet tenants among other industries within the same period were less than half that.
The report also states that the average length of tech subleases is about four years.
Not just any space will do; tech firms almost exclusively want prewar buildings with lofty ceilings and open floors, said Sean Black, a broker with Jones Lang LaSalle. Since that type of converted industrial space is clustered mainly around the Broadway corridor, supply is limited, he added, and demand is robust.
“They like the ‘old world meets new world’ look,” said Mr. Black, whose many tech clients include Foursquare. A lack of walls and cubicles, with eclectic art on the walls, embodies a certain attitude. “The last thing they want to do is conform with corporate America.”
Technology firms have been subletting a bit more space than they personally need, reflecting awareness of heightened demand from a flourishing industry that allows them to rent out extra room to similar companies. Besides, locking in the space at today’s asking rents, which for sublets is about $45 a square foot in Midtown South, according to Studley, is considered wise, because rents are expected to climb, companies say.
“It’s a great way to hedge the lease,” said Derek Stewart, who handled leasing for Foursquare before leaving the company this summer.
Foursquare, which has 120 employees in New York, paid about $45 a square foot in 2011 in a seven-year deal, Mr. Stewart said. But he estimated that with companies like ZocDoc, a physician app service, and Thrillist, a lifestyle site for men, under the same roof, the building had gained a bit of buzz as a popular tech address. That means the space could command $55 a foot today, he said. But so far there has been little urge to profit off the subtenants, he added, saying that Fueled and the other subtenants also pay about $45 a foot for their space. “We felt kind of badly making money off it,” Mr. Stewart said. “We didn’t want to have a bad name in this tight community.”
Mr. Stewart, who now works for David Tisch, a tech investor, also pointed out that subleases were essential for the survival of the tech community.
In San Francisco, where Mr. Stewart leased two spaces on behalf of tech companies, start-ups can afford direct leases, which often require just three months of rent for a security deposit. But in New York, 12 months of rent is common. “Landlords here are just so risk-averse,” he said.
In a business where a company’s start-up phase can be hypercompressed — Instagram was founded in 2010 and bought by Facebook for $1 billion two year later — short sublets are not unusual.
The news site BuzzFeed, for example, has signed a two-year sublease for space in the new headquarters of Tiffany & Company at 200 Fifth Avenue, across from Madison Square Park. BuzzFeed, which had been based on West 21st Street in a 20,000-square-foot space, will take an entire 58,000-square-foot floor, which is one of seven floors Tiffany has there.
The rent was not disclosed, but Greg B. Taubin, the Studley broker who represented Tiffany, said that comparable sublet space in the area went for $65 a square foot.
 “Companies like this don’t sign long-term leases because they don’t have a crystal ball,” Mr. Taubin said. But for Tiffany, which doesn’t need the space immediately, there’s an upside in cost reduction, too, he added.
Other advantages include having lights on and more people in the elevators, said Bonnie Shapiro, the director of leasing for Allied Partners, an owner of 568 Broadway. “You don’t want tenants touring the building and seeing dark, unused spaces,” she said.
For tenants that may be consolidating or downsizing, the new demand for sublet space may come at a fortunate time. Credit Suisse, the investment bank, which has undergone several rounds of layoffs in recent months, has managed to sublet all its former office space at 315 Park Avenue South, one of three locations it has in Manhattan.
Tech subletters in the 20-story Beaux-Arts tower, which is at East 23rd Street, include VaynerMedia, X+1 and Responsys, as well as Adap. TV, which this month took the entire seventh floor measuring 16,000 square feet. The new space features a red wall decorated with words like energy, creativity and passion, and executive offices around the perimeter have been turned into shared conference rooms. The space is a far cry from its cramped, plain-jane 4,000-square-foot space at 915 Broadway, said Gerry Manolatos, the communications director for Adap. TV.
Mr. Manolatos would not disclose the terms of his lease, only that it is for less than a decade. But in the merry-go-round of the tech sublet market, Adap. TV is cashing in itself; its former space on Broadway is also being sublet to a tech firm, he said.
“It’s like one deal leads to the next,” Mr. Manolatos said. “Everybody’s thinking, ‘Who knows where we will end up next?’ ”
Copyright 2013 The New York Times Company.  All rights reserved.

Judge Steven Rhodes
Judge Steven Rhodes held the first hearing today in Detroit’s historic bankruptcy filing.  During the hearing the judge entertained two motions filed by the Emergency Financial Manager of the City of Detroit.  The first motion was a motion for a “comfort order” to verify that the bankruptcy stay protecting the City of Detroit is in place and that the City of Detroit is protected from further lawsuits.  The second order was a motion to “extend the stay” or more accurately to expand the stay to cover the Governor, the Treasurer and other state officials from any lawsuits related to the filing of the Chapter 9 Bankruptcy.  The judge took arguments from the City of Detroit as well as each of the objecting creditors.  The judge also allowed comments from a few parties that had not objected.  After a rebuttal argument from the city of Detroit the judge adjourned to allow himself time to deliberate.
Kevin Orr
Judge Rhodes returned to the bench at 2:00pm to issue his ruling.  In regards to the first motion, Judge Rhodes ruled that the stay was in effect.  This portion of the ruling was a forgone conclusion as the provisions of the bankruptcy code are clear.  As part of his determination that the bankruptcy stay was in effect, the judge ruled that Detroit’s Emergency Financial Manager Kevin Orr, an official created under state law rather than city charter and appointed by the governor as opposed to elected by the residence of the city, is a city official under the bankruptcy code and therefore protected by the bankruptcy stay.
 
Governor Rick Snyder
The judge also granted the motion to expand the stay to cover the Governor and the Treasurer.  In his ruling the judge stated that the cases against the Governor and the Treasurer were so inextricably interwoven that the city could not receive relief unless the stay extended to the Governor and the Treasurer.  In his ruling the judge asserted that the bankruptcy code provides the bankruptcy court with exclusive jurisdiction to determine eligibility to be a bankruptcy debtor under Chapter 9.  In ruling that the court has exclusive jurisdiction, the court in essence ruled that the state court has no jurisdiction to review the actions of the state’s sitting governor in order to determine if those actions complied with the state constitution.  Instead the federal bankruptcy court will be the venue in which the governor’s actions will be reviewed.  In his ruling the judge acknowledged that if the case in state court were allowed to go forward, the state court may reach a different conclusion than the federal bankruptcy court thus creating confusion.
What the ruling failed to recognize is that while the state court case would have an affect on the outcome of the federal court decision, the two cases and legal determinations are not in fact the same.  The state court case was intended to review the actions of the Governor.  The federal court case is meant to review the eligibility of the City of Detroit to be a Debtor under Chapter 9.  Certainly the state court is a better forum to review the constitutionality of the actions of the governor under the state constitution.  The State of Michigan was deprived today of a right to review the actions of its own governor in light of its own Constitution.  That is a blow to states’ rights and to the basic concept of federalism.  It is very likely that the case will be appealed.
Second Chance Legal Services is a bankruptcy law firm located in Madison Heights, MI.  While we are located in Oakland County, we service Wayne, Oakland and Macomb County residents.  As Detroit Bankruptcy Attorneys we specialize in helping individuals escape their burden of debt in order to get a fresh start on their bright future.
Because of our small size our clients get individual attention.  You will have the same bankruptcy attorney throughout your case whether you are in a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy.  Your attorney will help guide you through the bankruptcy process in order to help you get a successful discharge of your debt.
It is important to note that Macomb County Bankruptcy Attorneys, Oakland County Bankruptcy Attorneys and Wayne County Bankruptcy Attorneys all deal with the same judges and trustees.  This is because all Michigan Bankruptcies are filed with the federal bankruptcy court in Detroit, MI.  For this reason, it is important that you choose an attorney not by location but rather by how comfortable you feel with them when you meet.  If you don’t feel comfortable with their knowledge, their experience or their demeanor you should seek out an attorney that you do feel comfortable with.
If you are interested in speaking with a Detroit bankruptcy attorney from Second Chance Legal Services, please contact our office at 248-629-6367 for a free initial consultation.

The Bankruptcy Court of the Western District of Michigan recently held that a spendthrift provision in a trust was negated by other trust provisions, and resulted in a debtor’s beneficial interest in the trust becoming property of the estate.1
The issue before the Court was whether the trust restrictions prevented the debtor’s beneficial interest from being included in property of the estate.2 In this case, the debtor’s mother created a trust in 2001, and the debtor was one of four named beneficiaries of the trust. Upon the settlor’s death in August, 2011, the trust became irrevocable. The trust included a spendthrift provision that prevented any beneficiary from assigning his interest in trust income or principal. The trust also included a provision authorizing the trustees, in their discretion, to distribute trust principal to a beneficiary in the event the beneficiary could not support himself. The trust further contained an “age-based restriction” on a beneficiary’s withdrawal rights (including the debtor’s rights). The “age-based restriction” specifically provided that after a beneficiary reaches age 25, the beneficiary has a “continuing right to withdraw any amount up to one half of the value of the trust assets; and after the beneficiary attains age 30, the beneficiary has a continuing right to withdraw all trust assets.” When the settlor of the trust died, the debtor was 42-years-old.  Read More ›
Tags: Western District of Michigan