Agenda - Council Work Session - 12/14/2010

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FLAHERTY & C OLLINS Properties December 7, 2010 Ramsey City Council 7550 Sunwood Dr NW Ramsey, MN 55303 Re: The Exchange at Brier Creek Dear Council Members: 8900 Keystone Crossing, Suite 1200 Indianapolis, IN 46240 317.816.9300 317.816.9301 Fax www. flab erty col l i ns. c orn No one in business is ever pleased when he is forced to file bankruptcy on a project that he completely immersed himself in and believed with all his hear that it would be a success story for his company. This is exactly what my partners and I endured with The Exchange at Brier Creek apartment community in Raleigh, N.C. What is even more gut- wrenching is when the project in question is by all means a success, but falls victim to the economy and the unstable environment of a lending institution, which is why I am sending you this letter today to provide a timeline on The Exchange and what led to the reorganization of the business under Chapter 11 of the U.S. Bankruptcy Code. At the time of the bankruptcy filing, the apartments were 94 % leased a very high level of occupancy in today's standards — and we were paying the lenders twice as much as they would have received under the original loan. The property was worth more then the debt and our plan was to sell the property and pay everyone off or refinance and take out the first position lenders. In all projects we develop, our first preference is to hold on to the property long term. Our normal — and desired — approach is to develop a high quality product, hold on to it long term, and provide high - quality professional management for our residents. In Ramsey, we plan to take our desired approach and be long -term owners of the project. Unfortunately with The Exchange at Brier Creek, we were forced to take a different path than normal. We were dealing with bankers who were not the original lenders. We were caught in the middle of banks buying competing banks, which put our company in the precarious position of dealing with lenders who were not interested in real estate loans. Two of the lenders involved would not even communicate with each other leading to the threat of legal action brought by both sides. While the banks were fighting with each other, we began negotiating with another entity to purchase the apartment community, but in its pursuit of the property, that buyer decided to approach our lender to buy the debt at a discount with the intentions of wiping out our ownership of The Exchange. This move backed ownership into the proverbial corner and we felt we had no choice but to file bankruptcy to protect our investors and those we owed money. The Chapter 11 reorganization filing forced the two participating lenders to communicate and provided a forum to help preserve the investment, as well as make sure that creditors were considered in the process.