Auraria - Nelson Properties

Case:22-12059-KHT Doc#:15 Filed:06/13/22 Entered:06/13/22 11:04:17 Page1 of 18
UNITED STATES BANKRUPTCY COURT

DISTRICT OF COLORADO
In re: )
)
5280 Auraria, LLC ) Case No. 22-12059-KHT
Tax ID/Ein: 84-3301286 ) Chapter 11
)
Debtor. )
MOTION TO EXCUSE RECEIVER’S COMPLIANCE WITH 11 U.S.C. § 543(a) AND (b)
Creditor DB Auraria LLC, a Delaware limited liability company (the “Secured Lender”),
moves the Court for entry of an order excusing compliance with 11 U.S.C. § 543(a) and (b) for the
state-court-appointed receiver, Michael L. Staheli of Cordes and Company LLP (the “Receiver”),
to retain custody of estate assets, and in support thereof states as follows:
Introduction
Debtor 5280 Auraria, LLC (the “Debtor”) owns a high-rise building in downtown Denver
aimed at providing housing for college students. For the past six months (approximately), the
Receiver has maintained control of the property, with the assistance of a professional property
management company. The Debtor filed this Chapter 11 case on the eve of a pending foreclosure
sale. During the roughly six months before the Debtor filed this case, the Receiver has taken
significant steps towards rehabilitating the property and retaining tenants nearly lost due to
Debtor’s mismanagement.
Excusing the Receiver from its turnover obligations pursuant to 11 U.S.C. § 543(d)(1) is
in the best interests of the creditors. Indeed, the Debtor has a proven track record of mismanaging
the property, and retaining the Receiver represents the best chance to maximize the value of this
estate. Returning the property to the Debtor would likely result in a diminishment of the estate to
the detriment of the creditors.
Background
1. Debtor filed for relief under Chapter 11 of the Bankruptcy Code on June 9, 2022.
2. Debtor’s sole member and manager is Nelson Partners, LLC, a Utah limited
liability company. The individual principal of Debtor and its member is Patrick Nelson.
3. Debtor owns certain real property associated with the Auraria Student Lofts in
Denver, Colorado. This includes not only the real estate known as the Auraria Student Lofts located
at 1051 14th Street, Denver, Colorado 80202 and 1405 Curtis Street, Denver, Colorado 80202
(described in more detail in the exhibits to a Deed of Trust, attached as Exhibit A), but also certain
real and personal property listed on pages 2-7 of the Deed of Trust (the “Deed of Trust”) attached
as Exhibit A. Together, the property secured by the Deed of Trust is referred to as the “Property”.
4. The Secured Lender holds a first-position Deed of Trust encumbering the Property
for a loan amount of up to $46,500,000. As of June 9, 2022, the balance on the loan totaled
$51,118,238.11. The loan was in default when the Secured Lender sought the appointment of a
receiver for the Property in Denver County District Court.
A. The Loan.
5. Pre-petition, on November 20, 2019, Debtor, as borrower, entered into a Loan
Agreement (the “Loan Agreement”) with Cantor Commercial Real Estate Lending, L.P.
(the “Original Lender”), as lender. Under the Loan Agreement, Original Lender agreed to loan to
Debtor up to $46,500,000 (the “Loan”). The Loan Agreement is attached hereto as Exhibit B.
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6. The Loan was made and evidenced by a Promissory Note from Debtor, as obligor,
to Original Lender, as holder, dated November 20, 2019 for $24,000,000, and a second Promissory
Note from Debtor, as obligor, to Original Lender, as holder, dated November 20, 2019 for
$22,500,000. The promissory notes may be referred to herein together as the “Promissory Notes”
and are attached hereto as Exhibits C and D, respectively.
7. Debtor’s obligations in the Loan Agreement and Promissory Notes were secured
by, without limitation, the Deed of Trust, Assignment of Leases and Rents, Security Agreement
and Fixture Filing, dated November 20, 2019 (previously defined as the “Deed of Trust”) granted
by Debtor to the Public Trustee of the City and County of Denver for the benefit of the Original
Lender. The Deed of Trust was recorded with the Clerk and Recorder for the City and County of
Denver on November 20, 2019 at Reception Number 2019164125. A UCC-1 financing statement
securing the personal property was filed on November 26, 2019 at Filing Number 2019 8398617.
8. Debtor’s obligations in the Loan Agreement and Promissory Notes were also
secured, without limitation, by the following:
a. The Assignment of Leases and Rents, dated November 20, 2019, from Debtor to
Original Lender, which was recorded with the Clerk and Recorder for the City and
County of Denver on November 20, 2019 at Reception Number 2019164125;
b. The Assignment of Management Agreement and Subordination of Management
Fees, dated November 20, 2019, from Debtor to Original Lender and consented to
by Nelson Property Management, Inc., a California corporation;
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c. The Lockbox—Deposit Account Control Agreement, dated November 20, 2019,
between Debtor and Original Lender and KeyBank National Association
(the “Bank”);
d. The Cash Management Agreement, dated November 20, 2019, made by and among
Debtor, Original Lender, and Bank;
e. The Guaranty of Recourse Obligations, dated November 20, 2019, made by Patrick
Nelson and Nelson Partners, LLC (collectively, “Guarantor”) for the benefit of
Original Grantor;
f. The Guaranty of Carry Costs, dated November 20, 2019, made by Guarantor for
the benefit of Original Lender; and,
g. The Collateral Assignment of Interest Rate Cap Agreement, dated November 20,
2019, made by Debtor in favor of Original Lender, and acknowledged by SMBC
Capital Markets, Inc.
9. All of the above referenced documents, in addition to the Promissory Notes and the
Loan Agreement, and any other documents executed with the above-referred documents, or
attached to the same, may be referred to herein collectively as the “Loan Documents.”
B. The Secured Lender acquires the Loan.
10. On or about November 5, 2021, the Secured Lender became the holder of the
Promissory Notes through a series of assignments from the Original Lender to others and,
eventually, to the Secured Lender. The Assignment and Assumption Agreement, dated November
5, 2021, between the Secured Lender and its predecessor-in-interest as lender is attached hereto as
Exhibit E.
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11. The Secured Lender is the present lender under the Loan Agreement, present holder
under the Promissory Notes, and present beneficiary under the Deed of Trust and other Loan
Documents.
12. The Deed of Trust holds a first priority lien position on the Property.
C. Debtor defaults under the Loan.
13. The Debtor never made a payment on the Loan after it was acquired by the Secured
Lender. The Loan matured and came due on December 9, 2021. Pursuant to Section 2.3.3 of the
Loan Agreement, Debtor was required, on the maturity date, to pay the Secured Lender all
outstanding principal, accrued and unpaid interest, and all other amounts owed under the Loan
Documents. Debtor failed to do this and, thus, effectuated an Event of Default under Section
8.1(a)(i) of the Loan Agreement as well as Article 2 of the Promissory Notes.
14. Additionally, Debtor also effectuated Events of Default, under Sections 8.1(a)(i)
and (iv), respectively, of the Loan Agreement and Article 2 of the Promissory Notes by, among
other ways, (i) failing to pay the Monthly Debt Service Payment Amount due in November 2021
as required by Section 2.3.2 of the Loan Agreement; and (ii) allowing a mechanic’s lien to be
recorded on the Property in violation of Section 5.2.2 of the Loan Agreement.
15. On December 14, 2021, the Secured Lender provided Debtor with written notice of
the Events of Default and demand for payment of all amounts due under the Loan.
16. As of December 14, 2021, the outstanding balance owed, and immediately due and
payable, under the Loan was $49,875,1616.41, consisting of $46,500,000 in principal,
$2,909,285.50 in interest, and $465,875.91 in fees. In short, the Debtor did not make a single
payment against the principal of the Loan.
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17. In addition to the above Events of Default, on April 26, 2022, a previously unknown
creditor of the Debtor—Auraria Stub, LLC—recorded a deed of trust on the Property dating back
to December 23, 2019. Unbeknownst to the Secured Lender, Debtor used the Property as security
for a $5,500,000 loan from Auraria Stub, LLC in 2019. Under Section 8.1(a)(iv) of the Loan
Agreement, this additional lien against the Property triggered another Event of Default.
D. The Receiver is appointed to preserve Property value.
18. As a result of Debtor’s defaults, on January 28, 2022, the Secured Lender filed a
Verified Complaint for Ex Parte Appointment of Receiver in the District Court for the County of
Denver (“State Court”), Case No. 2022CV30256. On January 31, 2022, the Secured lender filed
its Verified Motion for Ex Party Appointment of Receiver in the State Court. Under the terms of
the Loan Agreements, Debtor agreed to the appointment of a receiver. The State Court appointed
Michael L. Staheli of Cordes & Company LLP as Receiver (previously defined as the “Receiver”).
The Receiver took possession of the Property shortly thereafter. A copy of the Order Appointing
Receiver is attached hereto as Exhibit F.
19. Additionally, the Secured Lender sought to foreclose on the Property. The
foreclosure sale date was set for June 9, 2022 at 10:00 a.m. (MDT). Debtor filed its petition at 9:03
a.m. (MDT), less than one hour prior to the sale.
20. The Receiver remained in possession of the Property on the petition date.
E. Pre-petition evidence of Debtor’s mismanagement of the Property.
21. Broadly speaking, the Property consists of fourteen floors (floors 17 through 30) of
student housing situated in a high-rise building in downtown Denver. In addition to the living units
on the top floors, there are offices of the Debtor on the first floors and amenities for the Debtor’s
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tenants on the third and fourth floors. The Property contains 438 residential rooms located in 124
units throughout the fourteen floors. At the time of the Receiver takeover, the Property was
approximately 63% occupied. See First Report of Receiver Dated April 28, 2022, attached as
Exhibit G, p. 3.
22. The Property (consisting of student housing) has a condominium ownership interest
in the Executive Tower Condominium Project (“ET”), which represents the Property and the other
lessors/owners of the high-rise floors. See Ex. G, p.3.
23. The overall building is controlled by ET, otherwise called the “Association”,
through a board of directors. Debtor had a voice in the governance of the Association, but it was a
minority position. The Receiver now occupies this minority position on the board and has done so
for the past six months. See Ex. G, p. 3.
24. Prior to the appointment of the Receiver, the Property was managed on a daily basis
by personnel of Debtor’s principal (Nelson Partners) consisting of a general manager, maintenance
supervisor, maintenance technician, and leasing/administrative team members. Debtor
experienced frequent turnover at the general manager role. See Ex. G, p. 4.
25. Once in place, the Receiver hired a professional third-party property management
company to manage the Property: Cardinal Group Management Midwest LLC, a Delaware limited
liability company (“the Cardinal Group”). The Cardinal Group is a national student and
multifamily housing owner, operator and third-party manager headquartered in Denver, Colorado.
The Cardinal Group currently manages and owns over 89,000 student housing beds in 38 states
across the country and is the third largest student housing property manager nationally.
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Additionally, the Cardinal Group managed the Property before the Debtor acquired the Property
in November of 2019. See Ex. G, p. 4.
26. Once in place, the Receiver (in cooperation with the Cardinal Group) began
investigating the operational and financial condition of the Property. And it was evident that the
Debtor had mismanaged the Property. Some of the Debtor’s more egregious acts are described
below.
27. Following entry of the Order, Debtor blocked the Receiver and the Cardinal Group
from accessing the Property’s operational and financial computer system. Indeed, Debtor
repeatedly ignored initial requests to allow access to the system or provide copies of the resident
leases. See Ex. G, p. 5.
28. Though the Debtor did turn over some of the requested documents to the Receiver,
it was only after the threat of litigation and Debtor remained slow to produce documents if they
were produced at all. See Ex. G, p. 2.
29. Debtor has refused to turn over or provide any banking documents related to the
Property. See Ex. G, p. 5. Receiver was forced to obtain certain banking records directly from
Debtor’s known bank. See id.
30. At the time of the Receiver’s takeover, the Property (a high rise that tenants can
only comfortably access by elevator) was experiencing considerable issues with the elevators. The
Property has three elevators. One was completely inoperable, and the others experienced constant
service issues that would strand residents. After investigation, the Receiver discovered that Debtor
had entered into a three-year service agreement with a local elevator service company and
contracted with the company to modernize the elevators. However, Debtor had failed to pay almost
8
$99,000 related to the modernization and was approximately $36,000 in arrears in service amounts.
Because of the Debtor’s non-payment issues, the elevator service company was only providing
minimal ongoing service and maintenance of the elevators and had not yet fixed the broken
elevator. These elevator issues created operational challenges and led to reputational damages that
have affected the Property’s ability to attract new tenants. Under the Receiver’s guidance, these
issues are being remediated. And the Secured Lender has advanced funds to the Receiver to finance
these efforts. See Ex. G, p. 6.
31. Additionally, the Debtor failed to return over $57,000 in security deposits to former
tenants. In addition to the financial (and potential legal) impact of this liability, the refusal to return
tenant deposits continues to negatively affect the reputation of the Property. Additionally, the
Debtor has refused to turn over to the Receiver more than $100,000 in security deposits collected
from current residents before the Receiver was put in place. See Ex. G, p. 7.
32. In 2019, the Association concluded there was cracking in the brick façade to the
high rise, which was at risk of becoming disconnected and potentially falling to the street below,
placing pedestrian and vehicular traffic at risk of personal harm. Leading up to 2021, the
Association had collected funds from the property owners sufficient to hire a contractor to anchor
the façade to the building. However, the Debtor refused to prepare the floors the Debtor managed
for remediation work and the contractor was unable to securely anchor the façade on those sections
of the building. As a result, the public faced a very real threat of physical injury due to falling
debris. Under the Receiver’s guidance, however, these issues are finally being remediated. The
Receiver anticipates that the entire project will be completed by the end of July 2022. See Ex. G,
pp. 7-8.
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33. When the Receiver took over, the Debtor was past due on obligations to the
Association for more than $50,000. These amounts have since been repaid via a loan to the
Receiver from the Secured Lender. See Ex. G, p. 8.
34. Under the Debtor’s management, the residents were being charged a laundry fee.
Yet a significant number of the Property’s laundry machines were inoperable because the Debtor
failed to pay amounts owed to service companies and could not source parts. Also, the sewer lines
had not been cleaned in years, so the laundry drainage pipes kept backing up. Under the Receiver’s
guidance, the laundry machine issues have largely been remediated. See Ex. G, p. 9.
35. Under the Debtor’s management, a mechanic’s lien was recorded against the
Property by Redi-Carpet Sales of Colorado, Inc. (“Redi-Carpet”) in the amount of $171,728.64
at Reception Number 2020207066. In addition to reflecting an Event of Default, the recording of
Redi-Carpet’s mechanics lien reflects yet another outstanding pre-receivership debt incurred by
the Debtor.
36. At the time the Receiver took over for the Debtor, the Property had a 63%
occupancy rate. Occupancy rates for similar Properties range from 83% to 98%. Moreover, the
Debtor had signed leases with many tenants below-market rates. The Receiver is reviewing the
current leases to ensure residents fit the model for student housing and that the lease amounts are
in line with market rates. See Ex. G, p. 9.
37. Upon his appointment, the Receiver observed a general lack of preventative
maintenance at the Property as evidenced by—among other things—the poor state of the elevators,
the clogged pipes, old and soiled mattresses, frozen pipes at the pool, and the inoperable ADA lift
10
to the third/fourth floor common areas. The Receiver continues to address deferred maintenance
issues as funds are made available. See Ex. G, p. 10.
38. At the time of the takeover, the Property had fifteen leases in place for the upcoming
academic year, which represented a prelease percentage of approximately 3.4%. When the
Cardinal Group performed their initial marketing analysis, they identified that the Property’s three
main student-living competitors were pre-leased at 17%, 21%, and 32%, respectively. Under the
Receiver’s guidance, the Cardinal Group has initiated certain incentives and marketing events to
both drive traffic to the Property and increase future leases. See Ex. G, p. 10
39. At the time of takeover, the Receiver sought and received a loan of $400,000 from
the Secured Lender for maintenance and operation of the Property. A significant amount of this
loan has already been spent or put aside to deal with the issues identified above. See Ex. G, p. 10
40. If the Debtor were allowed to regain control of the Property, the Secured Lender
believes that the valuable improvements and management gains made by the Receiver would
quickly evaporate—all to the detriment of the estate.
41. As such, the Secured Lender respectfully requests that the Receiver be excused
from the turnover obligations imposed by the Bankruptcy Code.
Legal Argument
42. Pursuant to 11 U.S.C. § 543(a), the Bankruptcy Code generally contemplates that
all estate assets will be turned over to the Debtor following the commencement of bankruptcy:
A custodian with knowledge of the commencement of a case under this title may
not make any disbursement from, or take any action in the administration of,
property of the debtor, proceeds, product, offspring, rents, or profits of such
property, or property of the estate, in the possession, custody, or control of such
custodian except such action as is necessary to preserve such property.
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43. Section 543(b) goes on to clarify that a custodian must “deliver to the trustee any
property of the debtor held by or transferred to such custodian[.]” The Receiver is a custodian as
that term is defined in 11 U.S.C. § 101(11).
44. Pursuant to 11 U.S.C. § 543(d)(1), however, the bankruptcy court “may excuse
compliance with subsection (a), (b), or (c) of this section if interests of the creditors . . . would be
better served by permitting a custodian to remain in possession or control of such property.”
45. Given the Debtor’s pre-petition history of mismanagement and blatant violations
of the Loan Documents, the Secured Lender seeks authorization to excuse the Receiver’s
compliance with 11 U.S.C. § 543(a) and (b), and for the Receiver to remain in possession of the
Property under the same terms and conditions as set forth in the Order Appointing Receiver,
attached hereto as Exhibit F.
46. This request requires the Court to evaluate the Debtor’s management of the
Property prior to the appointment of the Receiver.
47. Moreover, the “broad terms of section 543(d) demand that a determination of
whether turnover is in the best ‘interests of the creditors’ be case specific.” In re Sabana Del
Palmar, Inc., No. 12-06177(ESL), 2013 Bankr. LEXIS 2258, at *13 (Bankr.D.P.R. May 29, 2013).
48. In deciding whether to apply the exception set forth in § 543(d)(1), the court
considers various non-exclusive factors, including:
a. The likelihood of reorganization;
b. Whether there will be sufficient income to fund a successful reorganization;
c. Whether the debtor will use the property for the benefit of its creditors; and,
12
d. Whether there has been mismanagement by the debtor. In re Packard Square LLC,
575 B.R. 768, 778 (Bankr.E.D.Mich. 2017); In re Dill, 163 B.R. 221, 225
(Bankr.E.D.N.Y. 1994); In re Lizeric Realty Corp., 188 B.R. 499, 506-07
(Bankr.S.D.N.Y. 1995); In re Constable Plaza Assocs., L.P., 125 B.R. 98, 103
(Bankr.S.D.N.Y. 1995).
49. “The interests of the debtor, however, are not part of the criteria when applying
section 543(d)(1).” In re Dill, 163 B.R. 221, 225 (Bankr.E.D.N.Y. 1994) (emphasis added); see
also 4 Collier on Bankruptcy, P 543.05 at 543-12 (15th Ed. 1993).
50. And a Debtor’s “pre-petition consent to the appointment of the Receiver favors the
continuous possession by the Receiver.” In re Picacho Hills Utility Co. Inc., No. 11-13-10742 TL,
2013 Bankr. LEXIS 1733, at * 20 (Bankr.D.N.M., Apr. 26, 2013).
51. Finally, in determining whether a custodian should be required to turn over estate
property, it is proper for the Court to consider whether the case was filed with the intent to delay
foreclosure. See In re Constable, 125 B.R. at 104.
A. The likelihood of reorganization, whether there will be sufficient income to fund a

successful reorganization, and whether the Debtor will use the Property for the
benefit of the creditors support excusing the Receiver’s turnover obligations.
52. The Debtor has tried—and failed at—this gambit before. Indeed, in at least four
recent instances, Debtor’s principal (Nelson Partners) has sought bankruptcy protection on the eve
of foreclosure of multiple student housing properties. Each time, Debtor has been unable to retain
the property—because there was no realistic path for reorganization.
53. The same is true here—there is no realistic likelihood of reorganization in this
matter. The Debtor owes Secured Lender more than $50 million on Promissory Notes that have
13
already matured. Indeed, the Debtor has not made a single payment against the principal of those
Promissory Notes. Moreover, Debtor’s sundry unpaid smaller debts (including amounts owed to
the Association, the elevator servicing company, and the laundry servicing company) suggest that
there is no realistic probability it has the means to repay $50 million and then pivot to running the
day-to-day affairs of a student housing project the Debtor could not run successfully to begin with.
Perhaps most telling is the fact that the Debtor failed to repay security deposits to countless
students who moved in under the Debtor’s management, moved out when their leases ended and
will probably never see their deposit money again. This is simply not the kind of debtor who can
retake management authority and then maximize the return to creditors during this Chapter 11
case.
54. Additionally, given Debtor’s history of mismanagement and failure to satisfy even
low-dollar debts to third parties, the Secured Lender has serious doubts that the Debtor—should it
be given management responsibility over the Property—would use the Property for the benefit of
its creditors.
B. The Debtor’s mismanagement of the Property supports retaining the Receiver.
55. The Debtor’s mismanagement of the Property supports keeping the Receiver in
place during bankruptcy. Indeed, given the Debtor’s track record as owner and manager of the
Property, excusing the Receiver’s turnover requirements is in the best interests of the creditors and
the residents of the Property.
56. Elevator Issues: Under the Debtor’s management, one of the three elevators in the
high-rise Property was completely inoperable at the time the Receiver took over. The other two
elevators for the Property were suffering from a lack of maintenance, because the Debtor refused
14
to pay its elevator servicing company. These issues resulted in clear operational challenges for the
Receiver as well as reputational damage to the Property making it harder to attract tenants.
57. Security Deposit Issues: As manager of the Property, Debtor failed to return over
$57,000 in security deposits to former tenants and refused to turnover over an additional $100,000
in current security deposits to the Receiver. These actions clearly create legal and financial liability.
They also further damaged the reputation of the Property, making it harder to attract tenants.
58. Façade Work: Debtor refused to participate in the remediation of a brick façade to
the Property, unlike every other owner of the high rise. This created significant issues with the
Association. More importantly, allowing this type of public safety risk makes it clear that Debtor
should not be in possession of the Property.
59. Past Due Association Fees: Debtor was more than $50,000 past due in payments to
the Association.
60. Property Personnel: Debtor was unable to staff a consistent workforce at the
Property. The Receiver has remediated this issue by retaining the Cardinal Group to manage the
Property (as the Cardinal Group had before Debtor obtained the Property). The Secured Lender
doubts that Debtor would be willing to pay the Cardinal Group to effectively manage the Property
if the Debtor regains management authority.
61. Laundry Facilities: Under the Debtor’s ownership and control, the laundry systems
of the Property were largely inoperable, even as the Debtor continued to collect laundry-related
fees from the tenants. Additionally, the Debtor had not properly maintained the sewage lines,
leading to blockages in the laundry pipes.
15
62. Occupancy Challenges: Under the Debtor’s ownership and control, the Property’s
occupancy rate was far below its competitors. The same is true of the Property’s pre-leasing rates.
63. Under the Receiver’s guidance, each of the above listed categories of
mismanagement either have been remediated or are in the process of being remediated.
64. Indeed, it is in the best interests of the creditors that the Receiver be allowed to
remain in possession of the Property. The Receiver has hired a third-party management company
with substantial experience in managing not just rental properties generally, but this rental Property
specifically. If the Receiver were not allowed to remain in possession of the Property, the same
mismanagement that plagued the Debtor pre-petition would occur post-petition, resulting in
accruing losses to the estate and harm to the creditors.
65. Allowing the Receiver to retain possession of the Property will ensure that the
assets of the estate are preserved, and that the Property remains fully operational and does not fall
into disrepair.
C. The Debtor consented to the receivership pre-petition.
66. In the Loan Documents, the Debtor consented to the appointment of the Receiver
once in default.
67. The Debtor’s pre-petition consent to the appointment of the Receiver favors
excusing the Receiver’s turnover obligations during the bankruptcy. In re Picacho, 2013 Bankr.
LEXIS 1733, at * 20.
D. The Debtor’s last-minute bankruptcy filing was designed to delay foreclosure of the
Property.
68. The Property was to be foreclosed upon on June 9, 2022 at 10:00 a.m. (MDT).
Debtor filed for bankruptcy relief only moments before the scheduled foreclosure sale.
16
69. It is clear that Debtor filed for bankruptcy relief with the intent of obstructing the
foreclosure of the Property.
70. The Debtor’s intent in filing to delay foreclosure is a proper consideration by the
bankruptcy court on whether to order the turnover of property by a custodian. In re Constable, 125
B.R. at 104.
71. The timing of Debtor’s bankruptcy filing supports excusing the Receiver’s turnover
requirements.
WHEREFORE, the Secured Lender respectfully requests that this Court enter an order
excusing the Receiver’s compliance with § 543(a) and (b) of the Bankruptcy Code and authorizing
the Receiver to continue its compliance with the State Court’s Order Appointing Receiver. The
Secured Lender further requests that the status quo be maintained, and that the Receiver be
permitted to remain in possession of the Property throughout the bankruptcy. The Secured Lender
also requests that this Court enter any additional and further relief that this Court deems
appropriate.
DATED this 13th day of June, 2022.
CHIPMAN GLASSER, LLC
/s/ Daniel W. Glasser

Daniel W. Glasser, No. 37716
Jennifer M. Osgood, No. 35070
2000 S. Colorado Boulevard
Tower One, Suite 7500
Denver, CO 80222
(303) 578-5780
(303) 578-5790
[email protected]
[email protected]
Attorneys for Creditor DB Auraria, LLC
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CERTIFICATE OF SERVICE
I hereby certify that on the 13th day of June, 2022, I served via CM/ECF a true and correct
copy of the MOTION TO EXCUSE RECEIVER’S COMPLIANCE WITH 11 U.S.C. § 543(a)
AND (b) on all parties against whom relief is sought and those otherwise entitled to service
pursuant to the FED R. BANKR. P. and the L.B.R. at the following addresses:
Michael J. Pankow Paul Moss

BROWNSTEIN HYATT FARBER SCHRECK, LLP Byron G. Rogers Federal Building
410 17th St. 22nd Fl. 1961 Stout St. Ste. 12-200
Denver, CO 80202 Denver, CO 80294
303-223-1100 303-312-7995
Fax: 303-223-1111 Fax: 303-312-7259
Email: [email protected] Email: [email protected]
Attorney for Debtor 5280 Auraria, LLC Attorney for United States Trustee
Matthew T. Faga
MARKUS WILLIAMS YOUNG AND HUNSICKER LLC
1775 Sherman Street, Suite 1950
Denver, Colorado 80203
303-830-0800
Fax: 303-830-0809
Email: [email protected]
Attorney for Receiver Cordes & Company LLP
/s/ Jennifer M. Osgood

Jennifer M. Osgood
18

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Case:22-12059-KHT Doc#:15 Filed:06/13/22 Entered:06/13/22 11:04:17 Page1 of 18

UNITED STATES BANKRUPTCY COURT

MOTION TO EXCUSE RECEIVER’S COMPLIANCE WITH 11 U.S.C. § 543(a) AND (b)

to retain custody of estate assets, and in support thereof states as follows:

the detriment of the creditors.

receiver for the Property in Denver County District Court.

5. Pre-petition, on November 20, 2019, Debtor, as borrower, entered into a Loan

and are attached hereto as Exhibits C and D, respectively.

secured, without limitation, by the following:

County of Denver on November 20, 2019 at Reception Number 2019164125;

b. The Assignment of Management Agreement and Subordination of Management

by Nelson Property Management, Inc., a California corporation;

c. The Lockbox—Deposit Account Control Agreement, dated November 20, 2019,

between Debtor and Original Lender and KeyBank National Association

Debtor, Original Lender, and Bank;

the benefit of Original Lender; and,

2019, made by Debtor in favor of Original Lender, and acknowledged by SMBC

Capital Markets, Inc.

B. The Secured Lender acquires the Loan.

C. Debtor defaults under the Loan.

8.1(a)(i) of the Loan Agreement as well as Article 2 of the Promissory Notes.

recorded on the Property in violation of Section 5.2.2 of the Loan Agreement.

payable, under the Loan was $49,875,1616.41, consisting of $46,500,000 in principal,

payment against the principal of the Loan.

D. The Receiver is appointed to preserve Property value.

Receiver is attached hereto as Exhibit F.

a.m. (MDT), less than one hour prior to the sale.

E. Pre-petition evidence of Debtor’s mismanagement of the Property.

lessors/owners of the high-rise floors. See Ex. G, p.3.

for the past six months. See Ex. G, p. 3.

by personnel of Debtor’s principal (Nelson Partners) consisting of a general manager, maintenance

supervisor, maintenance technician, and leasing/administrative team members. Debtor

experienced frequent turnover at the general manager role. See Ex. G, p. 4.

in November of 2019. See Ex. G, p. 4.

leases. See Ex. G, p. 5.

were produced at all. See Ex. G, p. 2.

Debtor’s known bank. See id.

these efforts. See Ex. G, p. 6.

Receiver from the Secured Lender. See Ex. G, p. 8.

Property by Redi-Carpet Sales of Colorado, Inc. (“Redi-Carpet”) in the amount of $171,728.64

at Reception Number 2020207066. In addition to reflecting an Event of Default, the recording of

in line with market rates. See Ex. G, p. 9.

issues as funds are made available. See Ex. G, p. 10.

quickly evaporate—all to the detriment of the estate.

from the turnover obligations imposed by the Bankruptcy Code.

that term is defined in 11 U.S.C. § 101(11).

better served by permitting a custodian to remain in possession or control of such property.”

attached hereto as Exhibit F.

Property prior to the appointment of the Receiver.

considers various non-exclusive factors, including:

a. The likelihood of reorganization;

b. Whether there will be sufficient income to fund a successful reorganization;

(Bankr.E.D.N.Y. 1994); In re Lizeric Realty Corp., 188 B.R. 499, 506-07

also 4 Collier on Bankruptcy, P 543.05 at 543-12 (15th Ed. 1993).

2013 Bankr. LEXIS 1733, at * 20 (Bankr.D.N.M., Apr. 26, 2013).

foreclosure. See In re Constable, 125 B.R. at 104.

A. The likelihood of reorganization, whether there will be sufficient income to fund a

the property—because there was no realistic path for reorganization.

53. The same is true here—there is no realistic likelihood of reorganization in this

B. The Debtor’s mismanagement of the Property supports retaining the Receiver.

the residents of the Property.

should not be in possession of the Property.

if the Debtor regains management authority.

leading to blockages in the laundry pipes.