Experts not surprised by Kalikow filing; bankruptcies mount

Real Estate Weekly, August 28, 1991 by Therese Fitzgerald

Experts not surprised by Kalikow filing

Unfazed bankruptcy attorneys last week said industry biggie Peter S. Kalikow's bankruptcy filing was evidence of the escalation in real estate-related bankruptcies, as the market continues to be flat and mortgage-holding banks grow increasingly impatient.

Kalikow, a major owner/builder of commercial and residential property and the owner of the New York Post, filed for Chapter 11 personal bankruptcy protection and also sought protection for Kalikow Real Estate Company, one of his property partnerships. The Post and other properties are not directly named in the filing but they could end up as collateral in a broad reorganization. Chapter 11 of the bankruptcy code enables an individual or company to reorganize their finances without having their assets siezed.

"It is not surprising and it is part of a pattern that's growing," said Howard Karasik, a bankruptcy specialist with Sherman Citron & Karasik.

According to Karasik, the increase in bankruptcies is not a direct result of the present economy, but a result of the economy of last year and the year before. The banks, he said, are now generally reluctant to refinance or make new loans. They are not willing, he said, to help developers through the "difficult financial period." Filings such as Kalikow's, Karasik said, are a "self-fulfilling" prophecy for banks.

"No one is prepared to wait," he said.

Karasik said his firm is seeing more Chapter 11 as well as other bankruptcies. There are a greater number of personal filings now, he said, because many of the deals of the last decade were formed as partnerships, and the general partners invested as individuals.

Kalikow goes Chapter 11

Kalikow's filing, the developer said in a statement, was "forced by one banking institution owed approximately $25 million" with which he could not arrange a settlement plan. Kalikow said he filed "reluctantly" because his "assets still substantially exceed" his liabilities by $400 million. His assets are said to be about $841 million and his debts $350 million.

The determined creditor is European American Bank, which is owed $25.9 million. EAB, Marine Midland Bank and National Westminster Bank, made millions in loans to Kalikow that were backed only by his personal guarantee. The three banks had acquired court orders against the developer, but signed agreements that said they would not enter the those judgments in court so that negotiations could continue. Pursuant to the judgements the banks could have put liens on Kalikow's assets. The liens expired last Monday, and all were willing to renew except EAB.

Kalikow's bankruptcy filing, some industry experts are saying, was a "tactical move" on his part. Kalikow gets protected and European American Bank, by taking such a hard line position, will find themselves being dealt with collectively alongside the other unsecured lenders. Some say a settlement between Kalikow and his bankers is still possible.

EAB is not the largest unsecured creditor. That spot belongs to Bankers Trust owed $45.9 million, followed by Manufacturers Hanover Trust -- $31.4, Citibank -- $26 million. Others include First National Bank of Chicago -- $10.4 million, Chase Manhattan -- $10 million, New York City Department of Finance -- $1 million, and News America Publishing -- $1 million.

Also, in his statement, Kalikow said the bankruptcy will not affect the operation of the New York Post, which he reports has operated profitably since last October, his office buildings, the new Millennium Hotel in downtown Manhattan, which will be completed in April, 1992, my restaurant and food service businesses and the vast majority of my other residential buildings, which continue to operate as "separate and successful businesses."

Kalikow said he is continuing negotiations with lenders so the that the bankruptcy may be resolved quickly.

Big and Small Filing

Michael E. Lehman, a partner with Lehman & Alter, a Livingston, New Jersey firm, which handles real estate bankruptcy, said more than 50 percent of his firm's current work is real estate related bankruptcies -- from the small contractor to the large developer.

"One of the largest concentrations of bankruptcy today is real estate related," he said.

Lehman said the majority of the bankruptcies occur because the developer has leveraged his equity in the property and his assets are not available to service his debt. In some cases, he said, the developer owns raw land and he cannot "flip it." or he has a developed property with significant vacancies, there is not enough cash to service debt and the building cannot be sold.

Lehman said not much can be learned by what the European American Bank did in the case of Kalikow because every bank acts differently and the same bank cannot be expected to act the same with all their borrowers. While some may opt for a settlement with the borrower, others, due to pressure from regulators or internal board, Lehman said, prefer the structure of the "bankruptcy environment."