Corporate meltdown leaves renters in limbo
Large apartment complexes abandoned to receivership and unruly weeds
 Pat Shannahan for msnbc.com Chandler, Ariz., police officers confront residents of the Alante at the Islands apartment complex last week at a meeting called to discuss what the renters would do next. |
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 Sharing the wealth—even when there isn't much March 16: In tiny Humboldt, Kansas, one big-hearted businessman is paying his employees to "keep up appearances" by taking care of the town. NBC's Kevin Tibbles reports. |
“I couldn’t even go outside to enjoy where I live,” said Krause, a 21-year-old office worker who pays $827 a month for a one-bedroom apartment with garage space. “I shouldn’t have to pay $800 a month to live in a … hole.”
It wasn’t until early March that Krause and other residents learned why the complex – the alluringly named Alante at the Islands — was rapidly going to seed. The property owner, Irvine, Calif.-based Bethany Holdings Group, had abandoned the complex and a dozen other large rental properties in the greater Phoenix area after defaulting on hundreds of millions of dollars in loans.
As panicked renters in Arizona began holding public meetings to explore whether they could walk away from leases, recoup security deposits or sue, it became clear that the scale of the mess was far larger than they had realized. Companies under the Bethany umbrella owned at least 60 — and possibly many more — large residential complexes across the nation, all of which are now believed to be in bankruptcy or receivership, potentially affecting tens of thousands of renters.
The Bethany Group meltdown highlights how few protections exist for renters caught in the foreclosure crisis. That’s a situation that some experts say is becoming much more common.
“People were paying attention to the single family resident market, the 100 percent, no-down loans,” said West Coast real estate investor and broker Virgil Hobbs, who is bidding on some of the distressed Bethany properties on behalf of clients. “And then beyond that wave is the commercial market, which is what you’re now seeing now."
When commercial residential properties change hands, tenants typically don’t feel much impact. But in this case, where properties were simply abandoned, the situation was chaotic.
Threats of utility shut-offs
In one abandoned Bethany property — the 500-plus-unit Granite Bay in Phoenix — tenants were served notice by the water company on March 6 that their water would be shut off in five days because of an outstanding $64,000 bill. Alarmed residents only found out shortly before the deadline that a Las Vegas company, 707 Management Services Inc., had been appointed as receiver for the property and would see that the water remained on.
Other Bethany complexes were threatened with gas or electricity shut-offs due to non-payment of bills. And staff at many of the Phoenix area properties said they had not been paid for a month or more before courts began appointing receivers to assume control of the complexes.
The precise size of the Bethany rental empire is difficult to establish because the company owns apartment complexes both under its corporate name and numerous affiliated companies.
At least 18 related entities — limited liability corporations, or LLCs, registered in Delaware that own properties in Texas — filed for Chapter 11 bankruptcy this month, leaving open the possibility that they will reorganize and try to pay creditors.
But many other Bethany properties are now in the hands of court-appointed receivers, indicating that Bethany has essentially abandoned them. The receivers — appointed to represent creditors —are charged with preserving any remaining value of the assets, managing them during foreclosure and recovering whatever they can for lenders, typically by selling at a deep discount.
Bethany CEO Greg Garmon could not be reached for comment. Answering services at Bethany’s main line and Garmon’s office said voicemail boxes were full. The Bethany Group’s Web site no longer works, though the cached version of its introductory page still asserts that “It’s all about people and their homes.” The main office number at Alante at the Islands no longer works.
San Diego company handling 24 properties
San Diego based Trigild Inc. has been appointed receiver for 24 of the Bethany properties, including seven in the Phoenix area. Just 13 of the properties under Trigild’s supervision represent more than $500 million in loan defaults, according to Trigild President Bill Hoffman. Those cases are being handled by five different courts in Arizona, California, Colorado and Florida. Five other large properties in Phoenix are in receivership under 707 Management.
Hobbs, the real estate broker, said he approached Bethany several months ago to inquire whether the company was interested in selling some of its properties after hearing rumors that the company was in trouble. He said he was told that the company’s portfolio contained more than 80 properties. But he said the company denied it was experiencing any financial difficulty.
“We walked away scratching our heads, saying they either got their heads in the sand … or they don’t care about (thousands of) tenants,” he recalled. “Don’t tell me they are just going to let the ship sink.”
Hoffman, the president of Trigild Inc., which is now responsible for Alante at the Islands among other Bethany properties, said the appointment of receivers by the courts should be seen as good news by tenants.
"The tenants are going to be better off with us,” Hoffman promised. “They will see improvements very quickly. The properties will be clean, and functioning properly within a few days.”
As a practical matter, a receiver has a strong incentive to keep tenants happy. They are the source of a property’s cash flow, and occupancy rate is a key factor in determining value. And by the second week of March, some upkeep issues had been addressed at the Bethany complexes. The Alante swimming pool was cleaned and trash pickup resumed. Trigild also is paying former Bethany employees who stayed on in the complexes, according to Hoffman.
But by law, Hoffman said, the receiver is not liable for security deposits from renters who signed leases before the receivership went into effect.
“There is no obligation for the receiver or the lender to give (tenants) deposits that they don’t have,” said Hoffman. If the deposits had been handed over to Trigild it would be different, he said, “but that owner (Bethany) has obviously spent that money or done something with it.”
Chances that tenants will get back the deposit are slim, said Ed Valenzuela, executive director of the Arizona Fair Housing Center.
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