National Apartment Developer Filing Bankruptcy

One of the largest apartment developers in the nation, Fairfield Residential LLC, recently decided on filing bankruptcy protection in the Delaware Bankruptcy Court.

Based in California, Fairfield owns over 64,000 apartments, condos and off campus student housing. The company also develops, buys and sells real estate property.

The Wall Street Journal reports on the struggles of a company that acquired $7 billion in real estate assets over the past seven years, and sold more than $12 billion in real estate over the last 12.

Fairfield’s assets are listed at $958 million. but the company said many of their properties are worth less than their loan balances.

The company was forced to default on loans which caused issues with two of their main lenders, Wells Fargo and Capmark Financial. Capmark also recently filed for bankruptcy.

So now the company is seeking to reorganize its debt in a Chapter 11 bankruptcy. Several key factors contributed to the decision.

The WSJ reported Fairfield filed for Chapter 11 reorganization due to the poor real estate market and the increase in unemployment. Both have significantly slowed the rental property business.

Single family homes are now being converted to rental properties and the market is now flooded to excess with supply.

During the housing crisis, Fairfield was unable to refinance their debt or sell investment properties. Fairfield’s CEO, Christopher Hashioka, told the Journal:

“Unprecedented collapse of the U.S. real estate market and capital markets had made it difficult, if not impossible, for Fairfield to continue without restructuring its financial obligations.”

The bankruptcy also affected the company’s investors, including the California State Teachers Retirement System. A spokeswoman for the company said the investors will be “wiped out” after the bankruptcy.

Fairfield has worked out deals with lenders on how they will restructure their organization during the bankruptcy. The company said it will transfer assets and operations to a new company and leave certain assets in a liquidating trust to help pay off their creditors.

The Wall Street Journal also reported that Fairfield needs to get support from their creditors before they finalize their reorganization plan to have it approved by the Delaware Bankruptcy Court.

The company said a number of investors are interested in purchasing some the company’s assets, but a spokesperson would not comment on who the investors were. Fairfield hopes to exit bankruptcy protection next year