The largest creditor in the Colorado Crossing collapse has filed a competing bankruptcy reorganization plan that would allow it to seize control of a large part of the stalled project.
The filing by GE Johnson Construction Co. challenges the developer of the project, SRKO Family Limited Partnership, on practically every front.
“We thought it was our responsibility to act on behalf of the rest of the creditors,” GE Johnson CEO Jim Johnson said.
The plan estimates $25.1 million in legal claims filed by the project’s 83 contractors, with GE Johnson’s portion exceeding $9 million. The two sides are scheduled to square off in bankruptcy court Dec. 1.
Colorado Crossing, once dubbed “Colorado Springs’ second downtown,” was supposed to be the site of office buildings, entertainment and retail space, multifamily living and hotel developments. SRKO’s financial problems grounded the project after only 17.5 of the 153 acres had been developed. An unfinished multiplex theater, parking garage, and the shell of an office building now sit vacant on the lot.
The reorganization plan proposed by SRKO principal Jannie Richardson would shield the undeveloped 135.5 acres from lien holders. Her hope is to eventually secure financing so that SRKO can resume development on the project.
GE Johnson is strongly opposed to this scenario.
“Any additional indebtedness on behalf of SRKO would work against our ability to get paid,” Johnson said. “We’ll be very concerned if (Richardson) encumbers that land further; that’s where the value is.”
Johnson said SRKO’s plan for the 17.5 acres of already-developed land also provoked his firm to act. SRKO is pushing to sell this parcel as a way to pay off lien holders.
According to GE Johnson attorney Craig Ecklund, the developed land would fetch only $6 million to $8 million. That would leave a deficiency of $18 million against the $25 million in contractor liens.
In SRKO’s plan, these sale proceeds would be the only source of repayment for lien holders.
Before countering SRKO’s reorganization plan, GE Johnson discussed buying out the project with another creditor, Colorado Springs-based architectural products company Stresscon.
Instead, Ecklund developed a proposal that draws distinctions between the developed and undeveloped portions of the land, each of which would be managed by different limited liability companies that hold the myriad secured and unsecured lien holder claims.
These companies would be controlled by the creditors.
While conceding that it would be a long-term endeavor, Johnson believes that the ability of lien holders to recover on claims is dependent upon the development of the remaining acreage into a revenue-producing property.
If both reorganization plans are approved by the bankruptcy court, each proposal would be put to the 13 classes of creditors for a vote
GE Johnson will be at an immediate disadvantage in this scenario, because four of the 13 classes of voters are SRKO affiliates or insiders. The firm tried to address this imbalance in its reorganization filing. GE Johnson wants the bankruptcy court to invalidate SRKO insider claims and exclude these entities from voting on the matter.
Ecklund said GE Johnson hopes to rally a group of plumbers, electrical technicians, engineers and builders who are owed money in creating a united front against SRKO.
Many of these contractors were forced to lay off workers and scale back operations as a result of frozen claims when SRKO sought bankruptcy protection in February. These firms will have to weigh the benefits of an immediate settlement for cents on the dollar against holding out until the project begins to generate revenue.
While the majority of the lien holders have not had a chance to review GE Johnson’s plan, the immediate reaction of some was not promising.
Karl Berg, a Colorado Springs attorney representing five contractors in the proceeding, said he was unhappy with either of the options. Berg said he would need more time to review the GE Johnson proposal, but that his initial reaction was to reject both plans.
Johnson, however, remains optimistic that lien holders will come on board once he has an opportunity to pitch his plan.
“The goal is for everyone to get repaid,” Johnson said. “I’m trying to pull together a meeting between the lien holders to communicate our plan. We’ll obviously be working to solicit their support.”
If the creditors are split in their support for the plans, the bankruptcy court has the power to implement the plan that it believes to be most beneficial
Such a ruling might hinge on how development of the property unfolded back in 2007. Construction started at the center of the Colorado Crossing property, resulting in the 17.5-acre island of developed land surrounded by raw property.
According to the GE Johnson filing, the developed property cannot be accessed without crossing through the undeveloped portion. The firm argues that this will limit interested buyers under the proposed SRKO reorganization, as it will be difficult to purchase one portion of the property without purchasing the other.
Richardson declined to comment on the proposed GE Johnson plan, although it’s clear that the two sides are far from any sort of compromise.
Earlier this year, GE Johnson petitioned the court to appoint a trustee to manage the estate through the bankruptcy. The firm alleged that SRKO was responsible for dishonest acts in getting contractors to continue to work, overestimating the value of returns on the property
“We want to appoint a (creditors’) committee to advise on the development,” Johnson said. “It would no longer be Mrs. Richardson’s property to mine.”
At this point, no decision has been made on the trustee question.