Professional Investors bankruptcy was filed under Chapter 11 on July 26, 2020 in San Francisco. The joint debtors (Professional Investors Security Fund Inc. and Professional Financial Investors Inc.) own 29 real estate projects in Marin County.
The properties include both commercial and residential. These projects were financed largely by individual investors who live in Marin County.
Of the 40 largest creditors listed in the Professional Investors bankruptcy, the largest amount owed to a single investor is $8,569,250 (Samara & Daniel Pardi) while the smallest amount on the list of 40 is $902,673 (Cheng, Fu-Tung). Overall, the company raised over $100 million from over 1,000 individual investors.
Complicating this picture is that many of the individual investors now allege fraud in the inducement by the debtor’s late CEO, Ken Casey. Multiple lawsuits have been filed for recovery of investment amounts. The SEC also launched an investigation into both companies after the death of Mr. Casey earlier this year.
From a bankruptcy perspective, the challenges in this case will be to balance the interests of individual investors against one another; and to balance the interests of JP Morgan Chase against the the individual investors. Chase ($76 million loaned) has first trust deeds against 16 of the 29 properties, some of which are also encumbered by second trust deeds to individuals.
Professional Investors has moved for use of cash collateral to finance a 13-week budget, alleging that the secured creditors will be adequately protected based on a sufficient net value of the various properties. However, the net property valuation provided to the court was apparently prepared by a real estate broker, not an appraiser. So it is unclear how accurate these property values are. There is also no indication whether the property value accounts for the pandemic shutdown of recent months, and the decline in cash flow likely experienced from the shutdown.
Appraisers in the Professional Investors bankruptcy will almost certainly need to use the cash collateral for appraisal of the various real estate projects, since an accurate valuation of these properties is the key to creditor recovery in the Chapter 11 case.