November 10, 2023 – Further to an unusual auction process which saw the Debtor receive two bids (only one ultimately actionable) after an October 31st bid deadline, the Debtor notified the Court that it intends to seek approval of the sale of the Debtor’s real property* to Kundalini Corp. (“Kundalini” or “Purchaser,” $9.2mn cash) [Docket No. 62, with attached executed October 31st PSA filed at Docket No. 63].
*The property is the former Kodak Hawkeye Plant located in Rochester, N.Y.
Several hours after the bid deadline, the Debtor received a signed contract from Kundalini noting an $8.5mn cash offer (exceeding a revised minimum bid of $7.0mn) and accompanied by a $300k deposit, which although less than the 10% of the purchase price required was enough to capture the attention of the credit bidding mortgagee (and back-up bidder, SHC-ET Funding VI LLC, as successor-in-interest to Stronghill Capital, LLC). Between November 1st and November 6th, negotiations between Kundalini and the mortgagee ensued with Kundalini agreeing to increase its offer from $8.5mn to $9.2mn and close on the sale no later than December 15, 2023.
On November 7th, however, the Debtor got another bid (and another contract of sale), this one from a Mr. Gatsonis, who was offering $10.75mn in cash but did not include a deposit with his tabled offer. On the condition that he actually come up with a $500k deposit, the Debtor (and mortgagee) were happy to welcome Mr. Gatsonis to a quickly scheduled November 9th auction. That deposit, however, does not appear to have been received, and the auction did not occur.
Who is Kundalini and any chance this sale actually closes? Good questions.
Like the Debtor, who apparently was growing cannabis at the facility after grander plans withered on an underfinanced vine, Kundalini has some connection with a Chinese entrepreneur (or perhaps just a 10b5-1 visa investor), Qi Chen, who (in a declaration filed by Kundalini in support of the sale) notes that he “has no affiliation with WBS Capital Inc. or its owner, Xiaomei (Sally) Lu or her husband Bally Bao [the reputed pot grower]” without providing much more.
Chen claims to be the President of Kundalini but there is more likely candidate as to who is behind the offer, Richard Raghunath, who claims to be Kundalini’s CEO (although previously also using the title of President himself), and who is a Trustee at Parjz Global Trust (the e-mail address for notices on the Kundalini contract is firstname.lastname@example.org). The actual contact name on the contract is a “LALL RAMCHRISHNA” which like Kundalini appears to be a yoga/hindu reference.
On March 22, 2023, WBS Capital Inc. (“WBS Capital” or the “Debtor”) filed for Chapter 11 protection noting estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $10.0mn and $50.0mn. At filing, the Debtor, the owner of the former Kodak Hawkeye Plant in Rochester, N.Y., noted that it had “commenced this chapter 11 case to prevent the receiver, recently appointed in the Foreclosure Action, from taking control of the Property…” As to the economic and operational factors that had pushed the Debtor into receivership, the Debtor notes: “The global outbreak of the ‘novel coronavirus,’ which lead to the Covid-19 pandemic, drastically impacted the repositioning of the Property [ie the conversion oft the sprawling former kodak research and manufacturing facility into into “a trade show/exhibition space for international trade”]. In addition, the recent strained relations between the U.S. and China has also negatively impacted the ability to reposition the Property as a global trade show and exhibition space venue.”
The notice states that, “…the Debtor intends to request the Court approve the sale of the Property to Kundalini at a continued hearing scheduled before the Honorable Elizabeth S. Stong, on November 15, 2023.”
Key Terms of Kundalini PSA
- Seller: WBS Capital Inc.
- Buyer: Kundalini Corp.
- Purchase Price: $9,200,000.00 (all cash)
- Deposit: $300k
- Purchased Assets: The real estate and improvements situated in the County of Monroe, State of New York consisting of that certain property commonly known as 1405-1447 Saint Paul Street, Rochester, Monroe County, NY 14621 [Section 90.76, Block 1, Lot 24.02, Section 90.84, Block 1, Lots 2.1, 3.1, 22.1, 42.1, 65 and 69] (the “Property”); including without limitation all machinery, equipment, fixtures of whatever nature which are affixed or attached to the Property (the “Fixtures”); all site plans, architectural renderings, plans and specifications, engineering plans, as-built drawings, floor plans, and other similar plans or diagrams, if any, which relate to the Property; and Seller’s interest in all licenses, permits and warranties air and development rights which relate to the Property and which may be assigned by Seller to Purchaser; all of the above hereinafter collectively called “Property.”
In a November 8th declaration [Docket No. 61] in support of the sale, Nelson Lee, the Debtor’s real estate broker provides, “Pursuant with the bid procedures order [ECF Docket No. 51], the Debtor was to conduct an auction sale of the Property on November 3, 2023 (the ‘Auction Sale’) should a qualified bid for the Property (other than the credit bid made by the holder of the mortgagee) be received by October 31, 2023. Neither, the Debtor nor M&M received a qualified bid to purchase the Property in accordance with the bid procedures order other than a $300,000 credit bid from the mortgagee. M&M did however receive a serious expression of interest from Evangelos Gatsonis (‘Mr. Gatsonis’). However, Mr. Gatsonis did not submit a marked contract of sale or a deposit by the bid deadline.
Several hours after the bid deadline, the Debtor received a signed contract substantially in the form of the approved contract of sale with a purchase price of $8.5 million (which exceeded the revised minimum bid of $7 million) from an entity known as Kundalini Corp. as well as a $300,000 deposit. Although this bid did not comply with the bid procedures, as it was received after the bid deadline and the deposit was less than 10% of the purchase price, I understand the mortgagee, the only other bidder via a credit bid, was interested in attempting to reach an agreement with this buyer.
Between November 1, 2023 and November 6, 2023, negotiations ensued and the mortgagee advised the parties that it would be willing to proceed with the sale to Kundalini Corp. on condition that it received net sale proceeds of $8.5 million which is substantially less than the amount owed. After some back and forth, Kundalini Corp. agreed to increase its offer from $8.5 million to $9.2 million (which with certain reductions of the brokerage commissions and professional fees would net the mortgagee $8.5 million) and close on the sale no later than December 15, 2023.
On November 7, 2023, Mr. Gatsonis, through counsel, submitted a marked contract of sale with the purchase price of $10,750,000 but did not deliver a contract deposit. After some back and forth, Mr. Gatsonis, through counsel, agreed to deposit a total of $500,000 by 12:00 noon on November 9, 2023. Based upon this representation and the substantial increase of the purchase price, the Debtor, in the exercise of its business judgment and after consultation with the mortgagee, agreed to permit Mr. Gatsonis to participate as a bidder at the hearing scheduled for 3:00 p.m. on November 9, 2023 on condition the deposit is received as represented.
M&M’s records reflect numerous inquiries about the Property. A total of thirty-one (31) individuals and/or entities submitted signed confidentiality agreements and M&M called a total of 131 visitors to the website. However, because of the unique nature of the Property as well as the substantial deferred maintenance and potential environmental issues, only two potential buyers executed a contract of sale and submitted offers. Kundalini Corp. offered $9,200,000 and Rochester Horizon LLC, an entity created by Mr. Gatsonis, submitted an offer of $10,750,000.
Based upon the two offers, the Debtor, with the consent of the mortgagee, intends to conduct a live auction at the hearing scheduled for tomorrow (i.e., November 9th).”
Based on the subsequent November 9th filing [Docket No. 62], it would appear that Mr. Gatsonis did not make the necessary filing, with that filing noting: “…although no qualified bids other than the mortgagee’s credit bid of $300,000 was received by the bid deadline, the Debtor received a signed contract of sale in the amount $9,200,000 and a $300,000 deposit from Kundalini Corp. (“Kundalini”) shortly after the bid deadline and the Debtor intends to request the Court approve the sale of the Property to Kundalini at a continued hearing scheduled before the Honorable Elizabeth S. Stong, on November 15, 2023 at 2:00 p.m.,” with no mention of Mr. Gatsonis or his $10.75mn offer in the filing.
Bid Procedures Motion
The motion [Docket No. 43] states, “The Debtor purchased the Property in September 2018. The Property consists of a total of 15 tax lots and consists of approximately 780,000 sq. ft. The Property was the former Kodak Hawkeye Plant, a historically significant property that was previously utilized for research, development and manufacturing purposes often for the United States government. The Property is federally designated as a foreign trade zone.
Since acquiring the Property, the Debtor has spent approximately $16 million dollars in repositioning the Property to convert the various buildings (buildings 6, 10, 11, 11-A, 12 and 12-A) into a trade show/exhibition space for international trade.
The Debtor seeks to establish a date on or about October 31, 2023 as the deadline (the ‘Bid Deadline’) by which prospective bidders must submit a cash deposit of ten (10%) percent of its Bid and execute a written binding Bid to purchase the Property. Only timely Bids meeting all of the requirements of a Qualified Bid made by a Qualified Bidder (as defined below) will be eligible for participation in the Auction.
The Mortgagee or its assignee or designee shall be deemed a Qualified Bidder and shall be entitled to credit bid a portion or all of its claim. For all other bidders, to be a Qualified Bidder a party must submit a Qualified Bid (as defined in the Auction Procedures) and be deemed by the Debtor in the exercise of its reasonable business judgment to be financially able to consummate the purchase of the Property.”
Agreement with Mortgagee
The motion further provides, “In consideration of relatively lengthy marketing process and the Debtor’s inability to make adequate protection payments, the Debtor has agreed that in the event the Debtor seeks to cancel the Auction (without the Mortgagee’s consent) for any reason, including, but not limited to, by virtue of the dismissal or conversion of this Chapter 11 proceeding, the Mortgagee shall be entitled to immediate relief from the automatic stay to enable the Mortgagee (if it so desires) to proceed with the Foreclosure Action, permit the Receiver to take control of the Property and consent to a judgment of foreclosure and sale in the Foreclosure Action. The Debtor does not intend to cancel the Auction absent the Mortgagee’s consent and the Mortgagee’s ability to credit bid will protect the Mortgagee’s interest in the Property and avoid the further delay and expense of proceeding with the Foreclosure Action.”
Goals of the Chapter 11 Filings
According to the Lu Declaration (defined below), “The Debtor commenced this chapter 11 case to prevent the receiver, recently appointed in the Foreclosure Action, from taking control of the Property and intends to utilize the provisions of the Bankruptcy Code to restructure the Mortgage Loan or to reach an agreement to restructure the Mortgage Loan. Based upon an August 2021 appraisal of the Property, there is approximately $25 million in equity in the Property over and above the mortgage (the ‘Appraisal’). Importantly, the Appraisal was based upon the buildings being empty and not subject to any leases.”
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Lu Declaration”), Xiaomei Lu, the Debtor’s president and sole shareholder, detailed the events leading to WBS Capital’s Chapter 11 filing. The Lu Declaration provides: “Since acquiring the Property, WBS has spent approximately $16 million dollars in repositioning the Property to convert the various buildings (buildings 6, 10, 11, 11-A, 12 and 12- A) into a trade show/exhibition space for international trade.
The global outbreak of the ‘novel coronavirus,’ which lead to the Covid-19 pandemic, drastically impacted the repositioning of the Property. In addition, the recent strained relations between the U.S. and China has also negatively impacted the ability to reposition the Property as a global trade show and exhibition space venue.
As a result of these events, WBS has had to pivot and reposition portions of the Property to other uses to generate revenue but still intends to continue to reposition much of the Property for use as an international trade show venue. WBS has recently entered into various leases/occupancy agreements for use of portions of the buildings for agricultural purposes which the City of Rochester has actively encouraged.
In or about January 27, 2023, SHC-ET Funding LLC, as Successor-In-Interest to Stronghill Capital, LLC (the ‘Mortgagee’) commenced a mortgage foreclosure action in the Supreme Court, Monroe County (the ‘Foreclosure Action’).”
The Debtor is the fee owner of the Property. The Property is subject to a first mortgage in the principal amount of $10,000,000.00. The mortgage loan was made in or about August 27, 2021. Aside from the Mortgage Loan, the Debtor has unsecured creditors primarily consisting of trade creditors, including a creditor which performed substantial renovation to the Property.
About the Debtor
According to the Debtor: “The Debtor is the fee owner of the real property commonly known as and located at 1405-1447 Saint Paul Street, Rochester, NY 14621 (the ‘Property’). WBS purchased the Property in September 2018. The Property consists of a total of 15 tax lots and consists of approximately 780,000 sq. ft. The Property was the former Kodak Hawkeye Plant, a historically significant property that was previously utilized for research, development and manufacturing purposes often for the United States government. The Property is federally designated as a foreign trade zone.
Since acquiring the Property, WBS has spent approximately $16 million dollars in repositioning the Property to convert the various buildings (buildings 6, 10, 11, 11-A, 12 and 12- A) into a trade show/exhibition space for international trade.”
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The post WBS Capital Inc. – After Chaotic Finish to Auction/Sale Process, Debtors Notifies Court of Intent to Sell its Former Kodak Facility in Rochester, NY to Richard Raghunath’s Kundalini Corp. ($9.2mn Cash) appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.