The Fairfield Shopping Center in Virginia Beach was caught in a flurry of legal activity in late 2018. It was in foreclosure, then it was going to be sold in auction, then – days before the sale – one of the center’s owners filed for bankruptcy, putting a quick stop to any going-going-gones.
That owner was Jon Wheeler, the fired CEO of Wheeler Real Estate Investment Trust, who controlled Fairfield TIC LLC. Even in the era of retail struggles, the shopping center itself had been doing fine. It was financing that got its owners into the financial predicament.
Four investors, “tenants in common” that included Wheeler’s Fairfield TIC LLC, bought the property in 2004 for $22.5 million, getting a $19 million loan from G.E. Capital Corp. Three years later, appraisals showed it was worth closer to $38 million, so the owners refinanced the G.E. Capital loan, getting a new $30 million loan from Lehman Bros.
Flash forward 10 years to October 2017, the owners still owed all $30 million, this time to the new trustee of the loan: U.S. Bank National Association.
What was the plan? Apparently, it had been to sell the property to Wheeler’s other company, Wheeler Real Estate Investment Trust, according to a court filing. But Wheeler REIT fired Wheeler in January 2018 and the company wasn’t interested in buying it.
Thirteen months after the loan came due, the court pointed out that the owners still had no exit strategy.
So what happened? The bankruptcy case was dismissed. A federal judge in Charlottesville said Wheeler didn’t file the case in good faith, since there was “no realistic possibility of reorganization” and the ownership structure wouldn’t have allowed it. A “tenants in common” structure has tax benefits but it requires everyone to be unanimously on board before selling, managing or leasing a property. In this case, only Wheeler’s interest had filed for bankruptcy, not the three others.
As for the shopping center, shops are still doing business there at the corner of Kempsville and Providence roads and it appears to be back in the hands of the bank.
Kimberly Pierceall, 757-550-1903, kimberly.pierceall@pilotonline.com
