Another Tenant In Common Company in Trouble

Portland, ORThe founder and chief executive of a company that offered tenants in common (TIC) investment opportunities has filed for bankruptcy. Sunwest Management founder Jon Harder filed for Chapter 11 bankruptcy on New Year's Eve, following lawsuits against himself and company management. This follows news from 2008 that DBSI, a different company that also dealt with TICs, had filed for bankruptcy.

In addition to Harder's bankruptcy, 14 Sunwest-affiliated companies also filed Chapter 11 bankruptcy. Sunwest manages a portfolio that has more than 250 senior housing projects. Those projects are financed by limited liability companies that are backed by individual investors.

According to the Statesman Journal, Harder and Sunwest investors borrowed a lot of money and owe around $2 billion in debt. Sunwest is currently involved in restructuring, during which properties that do not perform well will be sold off. While some creditors and investors will receive money from the sale of those properties, it is not yet known whether or not tenant in common investors will receive any money.

The Statesman notes that the Oregon Department of Consumer and Business Services has been following Sunwest's story carefully, concerned that investors involved in Sunwest's tenants in common investments may not have been adequately warned about the risks of such investments.

In 2008, Sunwest was prepared to sell off 7 bankrupt properties to a company in Boston for $40 million. However, individual investors, who are reported to have had more than $11 million in those properties, fought the sale, saying they would get nothing out of it. These investors are considered co-owners in the properties, but will not get any money from the sale of the properties if Sunwest's proposal is approved.

An article in the Oregonian says that approximately 1,200 investors put $400 million into Sunwest-affiliates, but many of them stopped receiving their monthly interest payments in the summer of 2008.

At one point, Sunwest was the fourth-largest provider of senior housing in the US, reporting approximately $500 million a year revenues. Part of the reason for Sunwest's success was its ability to raise money from private investors through TIC deals. However, problems with management, a decline in the real estate market and a lack of financing all contributed to Sunwest's massive decline. The company now owes approximately $1.8 billion to various individuals and organizations.

Now, tempers are flaring between Sunwest, GE Business Financial Services, which lent $57.8 million to Sunwest affiliates, and individual investors. The Oregonian reports that Sunwest affiliates and GE asked the bankruptcy judge to dissolve a committee that was formed by TIC investors. That committee was meant to intervene in the bankruptcy proceedings.

That seems like an awful turn for a company that promised its investors returns on their investments. Rather than making money for their tenant in common deals, these investors may wind up with nothing. How much do they stand to lose? Apparently, one senior center could be sold for $40 million, which will not even cover the $56 million owed to GE. Money owed to investors, also in the millions, would not even be a consideration in the deal.

If tenants in common investors were not adequately warned about the risks associated with their investments, or if they were sold their investments under false pretenses, they may be able to file a claim to recover some of their investment. A good first step would be to consult with a lawyer regarding the best method to recover money lost to TIC investments.