St. Paul Plaza developer seeks to end Chapter 11

November 20, 1992|By Timothy J. Mullaney | Timothy J. Mullaney,Staff Writer

One of the biggest local bankruptcy court cases of the real estate downturn took a sharp turn toward resolution yesterday as developer David Kornblatt filed a reorganization plan aimed at lifting him, his wife, his company and his 28-story St. Paul Plaza project out of Chapter 11.

The plan, filed with the U.S. Bankruptcy Court in Baltimore yesterday, would allow Mr. Kornblatt to keep control of St. Paul Plaza and to retain his home in the Dumbarton section of Baltimore County. He has already sold an apartment at the Watergate building in Washington to pay off part of his debts.

"It's a fair deal for all parties that gives me a chance to hold on for my family," Mr. Kornblatt said. "I'm proud of it. In this environment, I think that's a hell of a deal."

St. Paul Plaza is one of only 24 Class A office buildings in Baltimore. Its biggest tenant is the state Attorney General's Office.

The package must be approved by Bankruptcy Court Judge James Schneider by the end of the year or the deal is off, said John Martin Jones Jr., one of Mr. Kornblatt's attorneys.

It has already been approved by Mr. Kornblatt's two biggest creditors, Maryland National Bank and Cigna Corp., a Philadelphia-based insurance company. Each has a lien on a section of the office building, which is divided into several properties for legal purposes.

Unsecured creditors are owed about $5 million and would get 20 to 30 cents on the dollar under the proposal. They have not yet approved the deal, Mr. Jones said. Neither has First National Bank of Maryland, which holds a mortgage on Mr. Kornblatt's home.

The clearest winner in the deal is the City of Baltimore, which will get $2.5 million in back taxes and interest by the end of 1994. The city is not expected to contest Mr. Kornblatt's motion to waive late fees, which Mr. Jones said were legally dubious anyway. "The city is happy," he said.

Mr. Kornblatt and Maryland National come out well, but not unbloodied.

Under the plan, Maryland National would, in effect, reduce Mr. Kornblatt's debt to the bank to $14.8 million, from about $23.5 million, Mr. Jones said. Both figures include a new $1.46 million loan that the bank would make to help the Kornblatt-controlled partnerships that own St. Paul Plaza pay their back taxes, the attorney added.

In return, Maryland National will get timely payments on the $14.8 million, which might be better than it would have done if it repossessed the building, Mr. Jones said. It also gets the right to restore the loan balance to the higher number if Mr. Kornblatt defaults on the reduced loan, and the right to share in any gain Mr. Kornblatt receives if he sells or refinances St. Paul Plaza.

Mr. Jones said it is also likely that Maryland National will record a fourth-quarter earnings gain because of the deal. How big that gain is depends on how much the bank wrote down the value of the loan once Mr. Kornblatt sought Chapter 11 protection.

The bank gets an immediate gain if its past accounting assumed that the value of the loan had fallen below $14.8 million. Maryland National officials couldn't be reached yesterday, and have a policy that bars the company from commenting on individual loans.

Maryland National won't get more than the $23.5 million it is owed even in the unlikely event that Mr. Kornblatt sells the building for a major gain, Mr. Jones said.

The plan would let Mr. Kornblatt keep control of the building and his house, but he would lose an undetermined amount he invested in St. Paul Plaza as it careened toward bankruptcy last year. Mr. Kornblatt's company filed for Chapter 11 in April 1991, and the partnerships that own St. Paul Plaza sought court protection in May.

He and his wife were forced into personal bankruptcy because he had given banks personal guarantees for money he borrowed to upgrade St. Paul Plaza.

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