Lusso Apartments on North Temple files for bankruptcy

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The Lusso Apartments, at 1025 North Temple has filed for Chapter 11 Bankruptcy, according to a May 31 filing with the US Bankruptcy Court for Utah.

The market-rate project in the Fairpark neighborhood is part of the North Temple transit corridor, a Redevelopment Agency project area, and an Opportunity Zone, which has made it one of the city’s most rapidly developing areas.

In February we reported that two contractors had filed suit to recover nearly $800,000 owed to them by the sole owner of the project, Donovan R. Gilliland. 

Gilliland told us at the time that the project was under contract to be sold by the end of May, and he would be paying the subcontractors then.

Now that sale will likely happen only after the project emerges from bankruptcy court, “free and clear” of its debts. 

Gilliland reported 50-99 creditors in the filing, to whom he owes between $10 million and $50 million. Of the top twenty debts listed, he owes nearly $3 million to various local subcontractors.

His bank, Ready Capital, is holding a $36.5 million note on the construction loan. Gilliland assessed the unfinished building’s worth at $25 million. 

Why the developer stopped paying subcontractors is unclear. In the filing, Gilliland claims that he has the funds to pay unsecured creditors. When contacted by BSL this week, Gilliland declined to comment.

We spoke to an investment firm which buys debt from creditors in real estate bankruptcy filings. What is the owner’s likely strategy? Would you bet on the subcontractors getting paid?

Adam Stein-Sapir of Pioneer Funding Group told us that Gilliland may be trying to stop a foreclosure sale by his construction lender, which is the only secured creditor on the project, or renegotiate loan terms with them. 

“He chose to go with Chapter 11, which is reorganization, instead of Chapter 7 Bankruptcy, which is liquidation, probably because he believes there’s a way to rehabilitate the company,” Stein-Sapir noted.

Pioneer Funding Group typically reaches out to creditors whose claims are in bankruptcy, offering to pay them at a discount for their liens. 

“Those claims, accounts payable, don’t get paid until the end of the case, maybe not at all, or if they’re paid the amount is unknown. So we approach the vendors with a cash offer,” Stein-Sapir said.

When asked if he would try to buy any of Gilliland’s debt, Stein-Sapir told us “This would be a tough case for me to get involved in today. It’s looking pretty grim for these contractors who don’t have a lien, and even for those that do.” 

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Posted by Luke Garrott

Luke Garrott, PhD, has published in The Salt Lake Tribune and the Deseret News, and written features for the Salt Lake City Weekly City Guide and The West View. A former two-term councilman in Salt Lake City's District 4, he lives in Downtown Salt Lake City and grew up in the Chicago area.