Do Single Asset Real Estate Chapter 11 Bankruptcies Really Work?

What is a Chapter 11 Single Asset Real Estate Bankruptcy Case?  Well, first, these are commonly referred to as “SARE” cases.
A SARE case is one where there is a single piece of property or project, other than residential real property with fewer than 4 residential units, which generates substantially all of the gross income of the debtor.  See 101(51B) of the US Bankruptcy Code.   SARE cases allow mortgage holders to obtain relief from stay within just 90 days unless a feasible plan has been filed or the DIP has commenced monthly payments equivalent to interest to each secured creditor.  11 USC 362(d)(3).
SARE cases are needed when the property is not self sustaining.  Usually, there is a cash flow issue, and/or foreclosure is on the horizon.    It has been researched by bankruptcy experts that the most dominant factor in the success of “SARE” cases is that the value of the real property often determines the likelihood of success.   It doesn’t have to do with the amount outstanding as much as the outcomes seemed to correlate with property value more than anything else.   The higher the value the more likely the SARE cases will be successful.
So why consider a SARE bankruptcy?  Obviously, SARE debtors want to keep the real estate in tact and performing and one way to do that is filing a SARE bankruptcy.  Chapter 11 gives the property owner a chance to rehab the property or sell the property on its own terms, apart from foreclosure.  Postpetition DIP financing is another objective that can be achieved in a SARE bankruptcy depending on the circumstances.   Mortgage modification or a lender workout is also another viable solution.
There use to be a $4 million dollar cap on SARE cases, but that is no longer the case.
The key to SARE cases is fact specific.  Outcomes of such cases will rely upon a multitude of factors.  Because of the tight 90 day timeline, SARE debtors must react quickly.   While SARE cases are difficult, they are not impossible to work out.   Again, it will greatly depend on the facts of each case.
 
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