The thwarted sale of 50 Penn Place has landed in court.
Wilshire Secured Capital LLC, a California company that had a contract to buy the office-retail property, sued the owners, Dallas-based Rainier Capital Management and 25 tenant-in-common partners Thursday.
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Wilshire claimed breach of contract and sought lost profits, damages and attorneys' fees.
Tenant-in-common investments allow small investors to make institutional-grade investments that otherwise might be out of reach. They are popular among investors in "1031 exchanges” of investment properties free of capital gains taxation under Section 1031 of the Internal Revenue Code.
Wilshire claimed in the lawsuit, among other things, that 50 Penn Place has 51 fewer parking spaces than the law requires; that the roof needs to bereplaced, which puts Rainier "out of compliance with covenants in its existing mortgage and security agreement;” and that Rainier failed to lease retail space "during the entire acquisition process and admitted to holding back leases of prospective tenants.”
The deficiencies left Rainier in violation of the purchase contract, Wilshire said in the lawsuit, filed by Reid Robison of the McAfee & Taft law firm. Wilshire complained that the failed deal cost it $750,000 in earnest money, and $75,000 in expenses, interest and fees.
Rainier denied Wilshire's claims and told The Oklahoman Thursday evening that tightening credit markets were to blame for the failure of the transaction.
"Of course, we disagree with the allegations in the petition and believe that the evidence will reveal that the seller was in compliance and prepared to close in accordance with all of the contract terms.
During the contract period, there were never any claims of seller's deficiencies or defaults,” said Richard Cole Jr., senior vice president of Rainier Capital Management.
"The suit is simply the purchaser's attempt to reclaim their lost earnest money on a transaction they were unable to capitalize within the contract period.”
Cole said Wall Street credit turmoil helped tank the deal.
"Unfortunately, the 1031 exchange market — what we understood to be the source of the purchaser's equity — has slowed dramatically and the commercial financing markets have become extremely difficult,” he said.
"The nationwide tightening of credit has delayed many closings and despite our offer to extend the closing date the purchaser chose to let the contract expire.
"While we are disappointed by their inability to close the transaction, we will resume our property improvement plan and look forward to ongoing successful property operations.”
Rainier paid $25.7 million for 50 Penn Place, at 1900 Northwest Expressway, in 2004.
It includes a 16-story office building with 184,896 square feet, a three-story shopping center with 233,472 square feet and a two-story parking garage with 263,340 square feet.
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Sounds like Wilshire is throwing bad money after bad money. The "deficiencies" brought up in their suit should have been addressed during the due diligence period, not after they were unable to close, so that sounds fishy from the get-go. If it is true Ranier was willing and able to close it is an easy ruling. I encountered a buyer on an investment property I was selling for my employer in another state and a buyer defaulted because he couldn't get his money, then he filed suit against us and filed a lien against the property and claimed under oath we defaulted on the sale. It took the judge about 3 minutes to rule in our favor but it cost us a lot of time and money.
I wonder sometimes if a law firm ever met a case they wouldn't take...excluding conflict of interest issues. The things Wilshire mentions surely were found during due diligence, and I would think they would then be able to ask for their earnest money back. I'm not sure what's going on here.
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