Real estate developers’ exhilaration turns to pain in bankruptcy

Indianapolis developer Bruce Bodner stood in a mostly empty courtroom this month while his attorney laid out plans for him to make regular payments to creditors over the next decade.

Bodner is already 61. So assuming a bankruptcy court judge confirms his reorganization plan in late February, he will be chipping away at his debts into his 70s. And even then, unsecured creditors are estimated to collect no more than $2.65 million of the $25 million they’re owed.

Bodner’s family has been in the real estate business since the early 1900s, and Bodner himself was enjoying a nice run in the field until 2007—when he made what proved to be a catastrophic bet in Arizona.

He amassed a 62-acre spread in the Phoenix suburb of Avondale and set out to launch a residential development. When the collapse of the housing market scuttled that project, he shifted gears and began securing incentives to build a movie studio—a gambit that also failed.

By the time Bodner sought Chapter 11 bankruptcy protection in May 2011, two lenders on the Arizona property already had secured judgments against Bodner totaling more than $20 million.

“At the time, it seemed like there was a lot of growth in the area,” Bodner’s attorney, Edward Cardoza, told Judge Robyn Moberly, explaining his client’s predicament.

Many Indianapolis developers know the feeling. In good times, few industries generate an adrenalin rush like real estate development. But it’s a highly leveraged business built upon certain assumptions that proved flimsy when the financial crisis hit.

Just ask once-thriving builder Paul Estridge Jr., 55, who plunged into personal bankruptcy in September 2011, listing assets of $4 million and liabilities of $85 million. Last fall, an auctioneer sold off some of Estridge’s personal property, including an autographed Peyton Manning jersey.

Or Cornelius Alig, 57, CEO of Mansur Real Estate Services, who finds himself in especially tricky territory.

Alig filed for Chapter 7 liquidation in April 2012, and court papers list assets of $3 million and liabilities of $11 million.

Among the debts he defaulted on was a $400,000 loan he received in 2008 from Columbus, Ind.-based Indiana Bank & Trust. Evansville-based Old National Bank assumed the loan when it acquired the institution last fall.

Alig and three siblings had secured his loan by mortgaging a 3.4-acre property near Highland Country Club on the northwest side of Indianapolis. Or at least that’s what the mortgage shows. After Old National sued to foreclose, the siblings last month filed court papers saying they hadn’t signed the mortgage or authorized Cornelius to do so on their behalf.

If the siblings’ allegations are correct, Alig obtained the loan “by false pretenses, false representations and/or actual fraud,” Old National alleged in a suit it filed against him this month.

The bank noted in the suit that determination of fraud would wipe out Alig’s right to have the debt discharged under bankruptcy law.

Alig, who is representing himself in his Chapter 7 bankruptcy, said he was not comfortable publicly discussing the dispute over the mortgage.

“It is a family matter,” he said.

Bodner’s reorganization

By comparison, Bodner’s financial restructuring is playing out more smoothly. In December 2010, he turned over to creditors ownership of the King Cole Building, 1 N. Meridian St. And under his reorganization plan, Bodner would sell five properties, including buildings leased to CVS in Kokomo and Anderson.

But he’s keeping properties leased to CVS in Edinburgh, Tipton and Brazil, as well as other real estate holdings, including downtown’s Morrison Opera Place, 47 S. Meridian St.

Cash flow generated by his remaining property would help pay down notes held by creditors, ultimately yielding them a better return than they’d receive in a mass property sale, Cardoza argued during this month’s hearing.

So Bodner is poised to stay in business. And creditors seemingly win, too—or at least minimize the carnage.

“They will get a substantially higher dividend through the plan than if the debtor liquidated right now,” Cardoza said.•