Jackson Jambalaya

WJTV coverage

The Clarion-Ledger reported today the city of Jackson is taking steps to gain title to the land next to the convention center owned by TCI:

"The city of Jackson took its first step Thursday to formally end a partnership with a Dallas-based developer that lasted more than three years but failed to produce a full-service hotel to serve the Jackson Convention Complex.

That process could include litigation regarding how Transcontinental Realty Investors will repay a $6.7 million federal loan the city says the company has defaulted on.

The City Council voted 4-0 to authorize city officials "to take any and all action necessary" to resolve any remaining issues and wind down an agreement between the city and TCI to build a 16-story, 309-room hotel across from the convention center."

However, the article included this tidbit of information:

"He said TCI hasn't made any principal payments on $6.7 million of a $10 million Housing and Urban Development loan issued in 2008 to a local subsidiary, TCI MS Investments, to help developers acquire land for the project.

The loan was twice modified afterward to cover architectural fees and other costs, Teeuwissen said.

He couldn't immediately say why TCI hasn't made any payments, but indicated developers had told the city those payments would be made once a deal to build the hotel was finalized.

Developers never used the remaining $3.3 million in the loan, city spokesman Chris Mims said."

I knew it. I knew it I knew it, I knew it. I knew when I read their lawsuits and financial statements they had already done something on this deal, the question was what. Now we know. I heard about the default last week but was unable to confirm it with anyone on the record and didn't feel comfortable publishing the information without further verification. Now before the commercial realtors get up in arms, I know it is common practice for commercial borrowers to make interest-only payments some time while development takes place.

However, we are not talking about most commercial borrowers but TCI. They have not made an principal payments and nearly 100% leveraged. During public hearings their representatives have given evasive answers about their ownership and financial condition.

Well, I can tell you what is coming down the turnpike. Don't be surprised if TCI MS follows the practice of other TCI subsidiaries and files bankruptcy. That will allow them to tie Jackson up for a while where TCI will eventually lose the case or force Jackson into a settlement more to its liking. In fact, I will say it now: Jackson, go get yourself a good bankruptcy lawyer. Based on my Evans case observations, I'll even make a few recommendations: Richard Montague, Kristina Johnson, John Corlew, and since he won a few rounds, Scott Jones of Adams & Reese. I would recommend Jeff Rawlings but since he busted a couple of Bennie's cronies in bankruptcy court, that is probably not a good idea. TCI's share price is $1.64 and the market cap is $13.8 million.

Then there is this comment by KIM Waaaaaaaaaaaade in the comments section:

"The Hud 1 statement(s) cites the City of Jackson as the Lender. Hud involvement only raises the stakes re:liability. TCI assembled the acreage drawing on a $7 million dollar line of credit from City of Jackson. It bought property from several entities including JRA at prices that doesn't appear to be supported by comps.(I am not suggesting the initial sellers did anything wrong).

However, one plot of land sold for $135,000. Then 20 mins later a contiguous plot of land sold for $1.5 million dollars at the same closing table.
Best I can tell from the docs I've seen. We're talking about a total of 9 acres. The hotel land is about 4+/- acres. The question is will TCI get to keep the other acres bought with taxpayer money.

In this recent effort to build a hotel. The city was ready to pay TCI $14 million for the 4+/- acres. This would have paid off TCI's $7 million loan.And at closing TCI would have walked away with $7 million dollars at closing. Again, I've seen no appraisal to justify these numbers at this point.

They need to put crime scene tape around those closing docs. This whole thing is a Sandusky shower scene for the citizens of Jackson. We might come out of there clean. But we won't be able to sit down for a week.... "

Earlier posts about convention center hotel:
JRA rejects hotel proposals and says see ya next year
Earlier post about financial statements
Developer makes bid cheaper than TCI
More info on hotel deal
TCI pays all late taxes one day before vote
More TCI lawsuits
Kingfish discusses hotel deal on WJNT
Meet Jackson's new partner. Bankruptcy. Alleged mortgage fraud. Straw companies. Who cares?

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.

The Clarion-Ledger finally raised some questions about the stability of Transcontinental Realty Investments (TCI) in today's issue. The city of Jackson is using TCI to develop a site by the convention center for a hotel. Jeff Ayres didn't pull any punches and immediately raised the teeny-weeny concept known as "risk":

"The city's desire to have a hotel near the Jackson Convention Complex has resulted in a likely union with a real estate company in financial turmoil.

Should the project collapse, Jackson potentially could be responsible for the hotel project's $96 million bill."

No problems. We don't have to worry about such a collapse. Why? Because The Patron Saint of Bond Pimping told us so:

"Theoretically, you could say that. In actuality, I don't think that will be the case," said Porter Bingham, an Atlanta financial adviser working with the city on the deal with Dallas-based Transcontinental Realty Investors Inc."

Mr. Ayres moved on to the financial problems at TCI:

"TCI's stock value has dropped sharply, and its net loss widened this year. The company lost $59.3 million through the first half of the year - $41.1 million in the second quarter.

Company spokeswoman Chris Childress, in an email to The Clarion-Ledger, says the quarterly figures include a $25 million impairment reserve write-down, a non-cash expense, and "depreciation and amortization, which do not use any of the company's cash."

TCI has not turned a profit since 2008. It lost $68.3 million last year and $80.7 million in 2009.

The poor earnings also have affected the company's stock price, which slipped from as much as $13.75 per share in July 2009 to $2.47 on Friday.

TCI lists total assets of almost $1.4 billion and debt of just over $1 billion."

Councilmen Quentin Whitwell and Kenneth Stokes asked what the city's liability would be if TCI indeed wend under. St. Porter said no problem:

"While the memorandum calls for TCI to have an "absolute, irrevocable and unconditional guarantee" to cover 50 percent of any debt service shortfalls, Whitwell worries the city still could be at risk for the entire $96 million if things go wrong.

Ward 3 Councilman Kenneth Stokes said he has similar concerns.

"If they don't have any assets, we're going to be fully responsible," he said.

But Bingham, the city's adviser, indicated the 50-50 risk split between the city and developers will be a cornerstone of any final agreement.

"TCI wouldn't be able to go into bankruptcy to avoid paying it" in a worst-case scenario, he said."

Really Mr. Bingham? HOW? Is there some clause in the agreements with TCI that protects the city in case of a bankruptcy filing by TCI? Are the six million dollars in reserve for debt service going to be set up in an escrow account or deposited with the city so creditors can't touch it? How exactly is the city protected? Mayor Harvey Johnson said:

"TCI officials and Jackson Mayor Harvey Johnson Jr. say they feel safeguards are in place to prevent the city from becoming entirely responsible for any losses."

Um, what safeguards? That is all I'm asking. How is the city protected from assuming 100% liability if TCI goes under. Article

We are waiting for an answer.

Note: WLBT story last night on the deal.

Here are the audio recordings for the Kent and Larry on WJNT yesterday and today. Kent and Larry discussed the Convention Center Hotel yesterday. Kent did some research on the cost per square foot and other aspects of the deal. Here ya go.

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