One Size Fits Some: Single Asset Real Estate Bankruptcy Cases
Kenneth N. Klee
University of California, Los Angeles (UCLA) - School of Law
December 10, 2001
Cornell Law Review, Vol. 87, Sept. 2002, Forthcoming
For several years a debate has raged whether single asset real estate cases should be singled out for special treatment under the Bankruptcy Code. Under a $4 million debt cap of current law, single asset cases involve apartment houses, and small office buildings. But both Houses of Congress have passed legislation that will repeal the $4 million cap. If enacted, the legislation will subject large office buildings, shopping centers, and perhaps hotels to expedited discriminatory treatment in chapter 11 reorganization cases. Debate over the legislation has evoked passionate views, but to date views on both sides have been informed by anecdotal rather than empirical evidence. This article changes that by presenting empirical data gathered from a national questionnaire and cross checks the data against the case files of a bankruptcy judge in the most active judicial district in the country.
The results are striking. Asset values rather than amounts owing standout as a reliable predictor of plan confirmation. Surprisingly, value to loan ratios are less reliable than asset values standing alone. The data show that valuable properties have a much greater probability of confirming a plan than less valuable properties. The article suggests that if Congress desires to discriminate against single asset real estate debtors, it should draw the line to discriminate against only those cases where the property is worth less than somewhere between $7 and $8.2 million in asset value rather than changing current law to discriminate against all single asset real estate debtors.
Number of Pages in PDF File: 52
Date posted: December 27, 2001