Kornblatt secures loan to rescue St. Paul Plaza Unsecured debts paid to end bankruptcy

March 26, 1997|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

The Kornblatt Co. said yesterday that it had secured a $20.5 million loan on the St. Paul Plaza office tower downtown, the final chapter in a six-year saga to pull the 28-story building out of bankruptcy proceedings.

Under a new mortgage with New York investment house Lehman Bros., Kornblatt will be able to pay off debts owed to unsecured creditors dating to 1991, when the Baltimore development firm filed for bankruptcy to protect the 280,000-square-foot building from foreclosure.

"This means we are totally finished with the bankruptcy case, we've paid everyone off as per our agreements and now we're out of it," said David W. Kornblatt, the firm's chairman and chief executive. "And we're absolutely delighted -- it's been a long time."

The new five-year debt with Lehman, which carries an interest rate of roughly 9 percent, replaces mortgages held by NationsBank Corp. and Cigna Corp., which had unsuccessfully attempted to force Kornblatt to liquidate its holdings after the bankruptcy filing.

Kornblatt had borrowed $38 million from the two lenders to complete the building in 1989, according to U.S. Bankruptcy Court documents. About $29 million of that debt remained before the Lehman refinancing.

"We believe in the Baltimore market in general, because it continues to perform better than expected," said Ron Lawrie, a Lehman Bros. real estate adviser.

Unsecured lenders in the Kornblatt case are expected to receive roughly 35 cents for each dollar owed, an unusually high number. In most Chapter 11 bankruptcy cases, unsecured creditors typically receive pennies on the dollar, and often nothing.

Kornblatt's bankruptcy was among the first signs of Baltimore's downtown commercial real estate troubles, including bankruptcy filings, foreclosure auctions and a downward spiral in rental rates.

Kornblatt emerged from Chapter 11 protection in early 1993, an early signal that the moribund downtown office market was recovering. The building's fate was aided, though, by significant lease transactions with the U.S. Customs Service, the U.S. Drug Enforcement Administration and the state's Attorney General's Office.

St. Paul Plaza is currently 85 percent leased, Kornblatt said, mirroring office vacancy rates downtown for top properties.

"The Class A office market downtown has come back considerably in the past year or so, and we believe St. Paul Plaza is an attractive property that's well managed, in a solid location and has lots of on-site parking," said Bob Grose, a principal in Alex. Brown & Sons Inc.'s structured finance group, which arranged the loan.

Pub Date: 3/26/97

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