Jackson Jambalaya

Here is another bankruptcy filed by several subsidiaries of Transcontinental Realty Investors' sister company, American Realty Investors (ARL). The two companies are publicly traded but have the exact same management and engage in the same practices.

In this case, Far East Bank loaned $28.7 million to ARL and several subsidiaries. The subsidiaries quit making their payments and filed bankruptcy petitions on July 19,2010. Far East Bank had some smart lawyers and unlike other lenders who were stiffed by TCI and their subsidiaries, Far East went after only American Realty in Nevada state court. Well, what do you think American Realty tried to do? Remove it to, you guessed it, bankruptcy court where its subsidiaries filed their petitions.

Far East Bank fought the transfer and won. The bankruptcy judge ordered it back to state court. The state case is now tied up on legal issues and is on appeal to the state supreme court although it has not been adjudicated at the trial court level. Far East thus is still trying to collect its $28 million. Does any of this sound familiar?


Far East motion. Background of case is nice read.
Far East Bank exhibit

TPM has their data dumps, well, don't want to plagiarize so at JJ we are going to call them document downpours. Here are the closing docs for the 2007 transactions between Jackson and Transcontinental Realty over the sale of the land for the site for the convention center hotel obtained through a public records request. I've also included a copy of the presentation provided to the city council obtained in the same request. I requested a copy of any appraisals conducted for the property when the loan was closed and the PKF marketing study mentioned in Mississippi Business Journal article.

Found another bankruptcy by a TCI-owned company online. This one is by a little company called Woodmont. You know the drill. Lender grants loan to TCI and a subsidiary. Lender goes to court to foreclose on property. TCI-subsidiary then files bankruptcy. Here it is.


This embed is not one document but several in one filing. Includes original lawsuits and payment demands.

I was going to write about this but yes, the Clarion-Ledger beat me to it. The information is all true as I verified it myself the day before publication. Jeff Ayres reported:

"Property taxes due last year on nearly three-dozen parcels of land owned by the company trying to build a hotel across from the Jackson Convention Complex remained unpaid for much of last year, making those properties eligible for tax sale.

But a subsidiary of Dallas-based Transcontinental Realty Investors Inc. was able to redeem a total of $190,635 in 2010 property taxes on 34 pieces of land last month, allowing the company to continue to maintain ownership.

Hinds County Chancery Court records indicate TCI MS Investments redeemed the taxes Sept. 23 for the land on portions of Pascagoula, Pearl, Farish, Roach and Lamar streets....

The company paid the back taxes days before City Council was to vote on a proposal to loan TCI funds to spark the hotel development.

TCI officials would not comment on why taxes lapsed on the properties, referring questions to Jackson city officials, who said they couldn't comment because they weren't directly involved in that process.

The multiple parcels that had the outstanding tax bill included land the company wants to sell to the city." Article

The was taken on Monday, September 26. If TCI has problems, watch for it to use TCI MS to be the dumping ground while the parent company goes about its merry way.

JJ discovered additional lawsuits filed against Transcontinental Realty Investments (TCI) filed over the last two years by lenders seeking to repossess the property used as collateral for their loans. TCI is working with the city of Jackson to build a hotel on a site next to the convention center.

PNC Bank issued a loan to TCI for $16,250,000 in 2004. PNC states TCI stopped making payments after June 10, 2010 and owed $13,946,396 in principal and additional fees and interest of $706,466. PNC also claimed TCI told tenants in the building to make payments to TCI after the lender expressly told the them to make payments to PNC. PNC also issued another note in June 2004 on another property for $3,750,000. PNC claims TCI defaulted on that note as well and owes $3,364,166 and several hundred thousand dollars in interest and fees. The combined principal is $1,614,166.

PNC filed a lawsuit against TCI and its subsidiary Continental Common on October 21, 2010 in U.S. District Court in the Eastern District of Louisiana. PNC was able to obtain a sequestration order the same day seizing the property. However, Continental filed bankruptcy on October 28, 2010 in Dallas. The bankruptcy case is still active. There is a reorganization plan submitted to the court extending the maturity date of the note to the end of 2012. So, once again, TCI defaults on a huge loan and then scurries off to bankruptcy court where the lender is tied up while trying collect on the mortgage. Unfortunately, this is not the last time TCI pulled such a stunt.

Meet Caddo East Estates I, Ltd, a Texas company that loaned TCI and its subsidiary TCI Dedeaux Road a loan of $1,520,000. The total amount due after interest and fees are added is $2,068,048. TCI defaulted on the note and Caddo sued TCI in Dallas County on April 29, 2011. TCI sparred with Caddo in court for awhile then.........surprise....TCI Dedeaux filed a bankruptcy petition on September 26, 2011. Filing bankruptcy petitions usually "freezes" other pending lawsuits and they are transferred to the bankruptcy court.

What is emerging is a pattern by TCI. Several lenders: Wells Fargo, Armed Forces Bank, Caddo, Petra, and PNC lent TCI and its subsidiaries over $121,000,000. TCI and its subsidiaries default on the notes. When the lenders sue to collect on their mortgages, the TCI subsidiary then runs to bankruptcy court thus substantially delaying the collection efforts. Meanwhile TCI goes along its merry way. Two of the lenders allege TCI and its subsidiaries transferred title to other TCI-owned companies without their consent as it left them without collateral to seize in case of default. The bankruptcy court in Dallas twice dismissed the petition for bankruptcy filed by one TCI company after the lenders and trustee accused it of filing the petitions in bad faith. Earlier post on lawsuits

The financial statements and SEC filings of TCI paint a picture that may be at odds with the "outlook is bright" statement made by a TCI Vice-President to the Jackson City Council last week or as I wrote last week:

TCI "has lost $52 million this year and lost over $76 million each year for the last two years. The company has only earned a profit three times in the last ten years. It is leveraged at nearly 100% if one examines assets against liabilities. The share price has performed substantially worse than the industry average and is trading at around $2.50 per share. The company has been accused of committing mortgage fraud by at least three lenders in three separate lawsuits filed this year. A bankruptcy court in Texas twice this year threw out a TCI subsidiary's (FRE Real Estate) bankruptcy petition filed this year after lenders showed the court other TCI subsidiaries were transferring properties to FRE even though they were secured by nearly $100 million in loans provided by those lenders. Does this sound like a partner whose future is "bright"?

The Jackson City Council approved the convention center hotel deal with Transcontinental Realty Investments (TCI) yesterday by a 5-0 vote. Ward 1 Councilman Quentin Whitwell did ask TCI Vice-President Al Cozier about the company's health. The Clarion-Ledger reported:

"Crozier told Whitwell some of Transcontinental's subsidiaries have had to file for bankruptcy in recent years, but the parent company is in good shape, with about $1.4 billion in assets.

He said all real estate firms have faced a downward trend.

"I think our outlook is bright," Crozier added."

One can only wonder if Mr. Crozier uses a braille Kindle as the future of TCI is anything but bright. Take a look at S&P's analysis of the company below. Read it carefully.



First thing that pops out is the share price: $2.54 per share. While some may argue REIT's have suffered, TCI performed worse than its peers as shown in the graph at the top of page 2. The company has a YTD return that is a NEGATIVE 62% while the industry has a positive 2.6% return on investment. The industry has actually outperformed the S&P 1500 this year. The one year return is a negative 75% while the industry was 1.1%. One figure jumps out from the chart: $10,000 invested with TCI five years ago is only worth $1,954 today while the industry is $7,218 and the S&P 1500 was $9,424.

Still think the future is bright? Take a look at the income:
2010: -76.1 million
2009: -81.9 million
2008: -30.3 million
2007: .93 million PROFIT
2006: 1.95 million PROFIT
2005: -17.2 million
2004: -11.2 million
2003: -27.7 million
2002: -36.9 million
2001: 29.8 million PROFIT

This company has turned a profit only three times in the last ten years. Its June 30, 2011 SEC 10-Q filings show the outlook for TCI is not getting any better. The consolidated balance indeed shows assets of $1.2 billion. but liabilities of 1.1 billion. In other words, the company is leveraged at nearly 100%. In contrast, Parkway Properties has assets of $2 billion and liabilities of $1.2 billion and is leveraged at 60%.

S&P's notes state (p.3): "Transcontinental Realty Investors Inc. announced unaudited consolidated earnings results for the second quarter and six months ended June 30, 2011. For the quarter, the company reported net loss of $40.83 million..

For the six months, the company reported net loss of $52.88 million...."

Tell me, does this future smell "bright" to you, Mr. Crozier? Did I mention the market cap for TCI is only $20.6 million dollars? Yup. Jackson is going to buy the land from TCI for the hotel at a price that is roughly three/fourths of what the company is worth.

Time to recap what we know about our new partner. The partner has lost $52 million this year and lost over $76 million each year for the last two years. The company has only earned a profit three times in the last ten years. It is leveraged at nearly 100% if one examines assets against liabilities. The share price has performed substantially worse than the industry average and is trading at around $2.50 per share. The company has been accused of committing mortgage fraud by at least three lenders in three separate lawsuits filed this year. A bankruptcy court in Texas twice this year threw out a TCI subsidiary's (FRE Real Estate) bankruptcy petition filed this year after lenders showed the court other TCI subsidiaries were transferring properties to FRE even though they were secured by nearly $100 million in loans provided by those lenders. Does this sound like a partner whose future is "bright"?

5-0 vote. Remember that, folks. 5-0 vote.

Calls to Mr. Whitwell were not returned.

Earlier post
Copy of resolution

Update: Resolution passed 5-0. Here is a link to the resolution.

The Jackson Free Press published a good story last week on Jackson's efforts to build a hotel next to the convention center. The city pushes a storyline of Jackson working with a reputable developer to revitalize downtown. The city acts as a partner with the developer. The developer builds a hotel for the convention center, and we all live happily ever after.

However, there are two sides to every story and the other side of this story is about the developer: Transcontinental Realty Investments (TCI). A company in deep financial trouble. A company charged by more than one lender of committing mortgage fraud. A company thrown out of bankruptcy court twice this year after the lenders and trustee accused it of filing multiple bankruptcy petitions in bad faith. The company is leveraged at nearly 100% and lost $80 million last year. Several lenders sued TCI and its subsidiaries this year after TCI defaulted on nearly $100 million in loans. This is the company Jackson wants to make a partner in building a hotel.

The JFP reported:

"the city would partner with Transcontinental Realty Investors, or TCI, to build the hotel. Representatives from TCI said a convention center hotel will increase business at the Jackson Convention Complex and at downtown businesses."

"If the council adopts the plan, the city and TCI will issue $70.1 million in tax-exempt Gulf Opportunity Zone bonds through the Jackson Redevelopment Authority and $22.5 million in taxable bonds to help pay for the project. Total funding for the project would be $96.1 million...

Ward 1 Councilman Quentin Whitwell expressed concerns about the city guaranteeing the bonds and what would happen if TCI defaulted on its obligations, but Swerdling (City adviser) said that was unlikely. Whitwell also asked what would happen if the hotel did not do as well as they hoped..." Article

"Under the plan, the city would purchase land from TCI for $14.3 million. Either the city or JRA would then lease the land for the hotel to TCI to develop. Since the parcel of land is larger than would be needed for the hotel, the city could sell or develop the extra land around the hotel."

So the city issues bonds, pays $14.3 million to TCI, and jointly assumes the risk with TCI. Naturally the adviser assures Mr. Whitwell and the rest of the city council that everything will be fine. The risk is "manageable". You know, trust us.

Armed Forces Bank filed suit on March 9, 2011 against Transcontinental Realty Investors (TCI) and several companies owned by TCI. One of these companies is TCI MS Investments. Armed Forces Bank claimed it was owed $72,526,355 on a 2004 loan made to TCI. Armed Forces Bank accused TCI of transferring the title to the property purchased with the loan to a "straw" company on December 23, 2010. The straw company filed for bankruptcy on January 4, 2011.

TCI subsidiaries sold several properties to the "straw" company, FRE Real Estate on December 23, 2010. A TCI-owned company changed its name to FRE Real estate on the same day. The properties were secured by loans made by Armed Forces Bank. The plaintiff stated "the transfers and bankruptcy were without notice to Armed Forces" (p.30, paragraph 96).

Petra CRE made similar allegations in its own lawsuit filed on March 15, 2011 in U.S. District Court in the Eastern District of Louisiana against TCI. Petra stated it loaned the money to (TCI company) TCI Amaco on August 30, 2007 to purchase a commercial office building in New Orleans. Petra claims TIC owes $19,500,000 and the company played similar games in New Orleans after purchasing the property.

TCI purchased the building. TCI even signed an agreement with Petra stating tenants would make all rental payments directly to Petra.The shenanigans started in October 2010. Petra claims TCI notified the tenants to "make all rental payments" directly to the TCI-owned management company instead of Petra in violation of the agreement. TCI transferred ownership of the building to FRE on December 23, 2010 as well and recorded it with the Parish Clerk of Court. Once again, the lender said it was never notified of the transfer (Just think Claiborne Frazier, just on a larger scale) and saw its collateral vanish into the ledgers of the straw company.

FRE filed a bankruptcy petition in Bankruptcy Court in the Northern District of Texas on January 4, 2011. FRE listed the Amco building as one of its assets in the bankruptcy petition. The Dallas Business reported in January:

"FRE owns 29 land parcels, six office buildings, an apartment complex and two airplane hangars, with a combined value of $234.5 million, according to the company’s bankruptcy filings. FRE owes a total of $181.5 million on the properties, the company’s filings say. All except four of the properties are in North Texas.

FRE’s filings list more than 150 secured and unsecured creditors, including Armed Forces Bank NA and Wells Fargo Capital Finance Inc." Article

Petra, Armed Forces, and other lenders such as Wells Fargo objected to the petition and accused FRE of filing in bad faith. Wells Fargo also alleged FRE was created as a shell company. TCI subsidiaries transferred assets to FRE even if those assets were secured by loans. FRE then filed bankruptcy while creditors saw their collateral disappear. Wells Fargo claims it lost ten properties securing loans of $8.2 million due to these maneuvers by TCI. The court agreed with the lenders and dismissed the bankruptcy petition on March 1, 2011. Undeterred, FRE filed another bankruptcy petition on April 4. The trustee filed an objection to the petition. The court dismissed the petition in June. However, TCI's legal problems did not stay in Texas. A federal district court in Arkansas entered a $3,441,634 judgment against TCI on March 14, 2011. The court decreed land owned by TCI in Benton County, AR would be sold to help satisfy the judgment.

So let me see: Bankruptcy fraud. Mortgage fraud for tens of millions of dollars. Multi-million dollar judgments. Foreclosures. Phony companies created to hide assets from creditors. Yet, according to Jackson's "advisor", the risk is "manageable" and we should pay $14 million and put the taxpayers on the hook for nearly $100 million.