Chapter 11

Kahn fell prey to hard times

krupon@thestate.comApril 27, 2013 




— Four years after the Great Recession officially ended, it still has business owners struggling to recover, as evidenced by the bankruptcy filing last week by one of Columbia’s largest developers.

Alan Kahn – who has struggled against foreclosure of his signature shopping center, Northeast Richland’s Village at Sandhill – filed for bankruptcy protection for himself and two of his companies after accumulating more than $50 million in debt as the recession raged, court documents show.

The majority of that money, more than $32 million, is owed to Gibraltar BB4 LLC, according to a debt collection judgment issued in November in Richland County. Gibraltar is a real estate acquisition and investment division of Toll Brothers, a publicly traded home-building giant based in Pennsylvania.

Kahn also owes nearly $6 million to TD Bank, which a year ago sued for the balance owed on a loan for a shopping center in Virginia that the bank foreclosed on, according to court documents.

Kahn’s financial struggles are just one example of how business owners were caught off guard by the worst economic downturn since the Great Depression, which ended in 1939 – the year before the 73-year-old developer was born.

Kahn’s struggles – surfacing nearly six years after the 18-month long recession began and as the economy ekes out a recovery – show the depth and breadth of the Great Recession downturn.

“As the economy gets better, the damages that the Great Recession (have) done to good solid developers sometimes become apparent,” said real estate developer and entrepreneur Don Tomlin, chairman of S.C. Jobs-Economic Development Alliance.

Kahn filed under Chapter 11 protection for himself, Kahn Family LLC and Kahn Properties South LLC. His plan is to pay back his creditors, re-emerging as “sustainable and profitable operating entities,” he said in a statement last week.

“It’s pretty tragic,” Tomlin said. “He’s a very, very good developer, a very sound businessman and well respected by lenders, the development community and the engineering community. He will certainly overcome this reorganization with finesse, fairness and creativity.”

Rise of the lifestyle centers

At 73, Kahn is a seasoned shopping center developer with projects throughout the Southeast.

He has had a hand in developing most of the malls in the Columbia area – from the early Columbia Place Mall on Two Notch Road, near Decker Boulevard, to more recently working to try to recruit national retailers to revive the struggling Richland Mall in Forest Acres.

The affable Kahn, whose modest offices on Farrow Road are easy to miss, seemed to weather the downturn.

When he started building the Village at Sandhill on Clemson Road in Northeast Richland a decade ago, the economy was soft, recovering from the bursting of the dot-com bubble in 2000.

As the economy began building strength, Kahn firmed up plans to build on the 300-acre mixed-use development, with construction starting for its first tenant, a new concept Super Bi-Lo, in the fall of 2003. The project moved steadily forward with dozens of retailers opening over the next few years.

In 2005, Kahn borrowed nearly $11 million to develop a similar lifestyle center in Roanoke, Va.

The economy was forging ahead. The unemployment rate was falling – in South Carolina, it dipped to 5.5 percent in 2007 from 7 percent when construction began at the Village at Sandhill. Homeownership was rising sharply as loose lending standards and creative loans allowed financing for virtually anybody who wanted to buy a home. National chains were looking for mega-lifestyle centers, like the one Kahn was building, in burgeoning population centers, like Northeast Richland and Roanoke.

In 2007, Kahn opened the first condos in the Village at Sandhill – at an average price of $275,000 – just two months before the country officially entered the recession that would rage for the next 18 months.

Few saw the derailment that lay ahead.

The Great Recession led to a financial collapse, a government bailout of banks, massive job losses, a foreclosure crisis and widespread bankruptcies among national and regional retailers – an economic crisis the country still is struggling to recover from today.

Signs of trouble

The first clue that something was wrong came in 2010 when Kahn failed to pay on time $1.2 million in Richland County property taxes for portions of the Village at Sandhill.

At the time, Kahn said he was behind on the development’s taxes because Bi-Lo, which had filed for bankruptcy protection, wasn’t making rent payments. Kahn paid the taxes in August of that year – nearly seven months late.

A year later, TD Bank started foreclosure proceedings on the Village at Sandhill and other properties that Kahn owned, according to paperwork filed with the Richland County courts. According to a civil judgment in a six-inch-thick file in the Richland County Clerk of Court’s office, Kahn was ordered to pay $20.6 million to TD Bank for the Village at Sandhill and other properties to avoid a May 2012 foreclosure auction.

It was unclear Friday whether that foreclosure ever made it to the auction block. Efforts Friday to reach Kahn and his lawyer to comment were unsuccessful. Efforts Friday to reach TD Bank’s attorney also were unsuccessful.

Kahn also was struggling to pay back a $10.87 million loan that he first took out in 2005 with Carolina First Bank. TD Bank inherited that loan when it bought the battered Carolina First for 28 cents a share in May 2010.

According to a lawsuit filed by TD Bank in March, the Roanoke loan was modified in 2010, but Kahn missed payments in March, April, May and June 2011. TD Bank foreclosed on the property in January 2012, recovering close to $6 million that it was owned. The bank then sued Kahn for the balance due and some other fees and penalties. Earlier this month, the two sides agreed Kahn would pay the bank $5.84 million to settle the balance owed, according to court documents.

‘Their own best interests’

Two weeks later – last Monday – Kahn filed for bankruptcy protection under Chapter 11.

Filing for bankruptcy protection was a way, he said in a statement last week, to give all of his creditors a fair shake at repayment, instead of allowing one creditor to jump to the front of the line. Kahn said he had been working privately with creditors on a repayment plan until one, who he did not name, took legal action “to force the court to give over to them assets, placing them in front of the other creditors.”

Kahn supporter Tomlin bemoans “a group of creditors (that) can’t seem to act in their own best interests and intelligently and cooperatively work through complex financial situations.”

Added Tomlin: “When you can’t get creditors to cooperate, even one of the very best and most respected developers – Alan Kahn – (is) sometimes compelled to use the court system in the bankruptcy court to get to a fair outcome for all parties.”

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