A bankruptcy filing threatens to delay a sale of the IMG Center, a 15-story downtown Cleveland office building that has been tied up in court for three years.
James Breen Real Estate LLC, a small company owned by longtime IMG Center steward Jim Breen, filed a Chapter 7 bankruptcy petition on July 20. The move hit the pause button on foreclosure litigation over the IMG Center as a monthslong sales push seemed to be nearing its crescendo.
It’s unclear how long the timeout will last. In Chapter 7 cases, an automatic stay — which stalls lawsuits, foreclosures, repossessions and collection actions against a debtor — typically runs for 90 days or so. But creditors can seek relief from those restrictions.
James Breen Real Estate is not actually a defendant in the foreclosure case, raising the question of whether the stay will have sticking power. At very least, though, the bankruptcy filing complicates an already messy legal fight and adds to the uncertainty around the future of a high-profile property.
Paul Downey, the court-appointed receiver who has been overseeing the IMG Center since October 2019, said he’s unsure about the implications for the sale effort, which he’s conducting with help from the Cushman & Wakefield brokerage’s Cincinnati and Columbus offices.
“We’re going through a bid process,” Downey said. “We’re right in the middle of it.”
He wouldn’t discuss whether there’s a preferred buyer for the property, a 1960s tower that’s a candidate for a partial apartment conversion. The IMG Center is about 80% full and was appraised at $9.1 million in March, according to loan-servicing records.
Breen, who has been fighting the foreclosure, declined to comment publicly.
Attorneys on both sides of the case did not respond to interview requests.
Another company managed by Breen, 1360 East Ninth Cle LCC, owns the IMG Center and is the lead defendant in the foreclosure case. Breen, a real estate investor and former broker, also is named as a defendant.
David Simon, a Beachwood bankruptcy attorney and Chapter 7 trustee, questioned the basis for the automatic stay. “I would be looking for a motion for relief from stay, unless for some reason the foreclosure plaintiff is comfortable letting the case sit for a little while to see if a marketing effort is successful,” said Simon, who is not involved in the litigation.
This week, Common Pleas Court Judge Daniel Gaul affirmed the stay. But that doesn’t mean that the lender can’t protest. It’s not unusual for judges to respond that way to a notice of a bankruptcy filing, Simon said.
“Oftentimes, if they smell bankruptcy or they get word of a bankruptcy that relates to the parties in the case, they’re going to issue a stay,” he said.
There’s not much at stake in the bankruptcy case, a liquidation of a real estate services company that, notably, lists more assets than liabilities.
Most of the estimated $500,001 to $1 million in assets are accounts receivable — bills that Breen apparently sent to the receiver — with the rest comprised of office furniture at the IMG Center and gym equipment in a building next door. The estimated liabilities, up to $500,000, include legal bills.
The financial stakes are much higher in the foreclosure lawsuit, which stems from a $17 million mortgage issued in 2018. That loan was bundled with other commercial real estate debt and used to back bonds sold to investors. In July 2019, a representative for the bondholders filed the foreclosure case, alleging that Breen’s ownership group had defaulted.
In court filings, Breen is pushing back against the lender and Rialto Capital Management, the special servicer tasked with handling the troubled debt. The lender, meanwhile, is pursuing a sale of the building and going after Breen personally over a loan guarantee.
In March, a magistrate issued a decision in favor of the lender and tallied up the unpaid principal, interest, penalties and fees at more than $23.3 million. Gaul, the judge, has not ruled on that decision, which Breen is challenging.
Court records show that Breen has tried to sell the IMG Center several times. But those potential deals have not panned out. Loan-servicing records mention that the “borrower has not submitted acceptable proposals.”
A June loan-servicing note states that the parties still were engaged in behind-the-scenes negotiations even while the lender was evaluating offers presented by the receiver.
The 264,000-square-foot IMG Center occupies a prominent corner in downtown’s Erieview Historic District, where certain redevelopment deals are eligible for preservation incentives including state and federal tax credits. At East Ninth Street and St. Clair Avenue, the property also is in an Opportunity Zone, a federally designated area that offers tax deferral and savings to investors looking to redeploy capital gains from the sale of stock, real estate or other assets.
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