Chelsea Art Museum restructures debts and retains use of its facility for 2-year period
Clients Chelsea Art Museum
Jones Day filed a petition in the Bankruptcy Court for the Southern District of New York on behalf of 556 Holding LLC, a real estate holding company that owns a 30,000 square foot building in Chelsea's art district that is home to the Chelsea Art Museum, and conducted an auction of the real estate that resulted in the sale to a local real estate development company. The Chelsea Art Museum is a not-for-profit museum that provides exhibitions and related cultural events and educational programs on contemporary art. 556 Holdings' owner, Dorothea Keeser, is a German citizen and wife of French abstract painter Jean Miotte. The Museum's permanent collection includes many of Miotte's works. Keeser supports the Museum through 556 Holding, which rents the space to the Museum for $1 rent.
Jones Day was tasked with assisting the client in restructuring 556 Holdings' debts in a manner that would permit the Museum to continue in its current space. Given the Museum's prime location and Hudson River views, the property attracted much interest from real estate developers. The Firm conducted an auction and received bids from half a dozen interested parties, including Toll Brothers and other major local real estate developers. Several of the proposals provided either for the continued occupancy of the Museum in its current space rent free for a period of time or for the construction of a new building that included a restored Museum space. Ultimately, the client chose a rather complicated real estate transaction with her neighbor that provided for refinancing of the loan in return for mutual access rights by the neighbor's event planner tenant and a restrictive covenant that would prohibit future development of the Museum's air rights. Unfortunately, that transaction was not meant to be, as the other party backed out at the eleventh hour after weeks of negotiations. Racing against an already expired standstill deadline with her lender, Jones Day negotiated within 48 hours a sale agreement with a local real estate developer that provided for the sale of the building, but permitted the Museum to continue to operate rent free through 2011.
Meanwhile, prior to consummation of the negotiated transaction, 556 Holdings' lender, represented by its lawyers at Cooley, filed a "deed in lieu" of foreclosure to transfer title of the property to its name. Undaunted, the Jones Day bankruptcy team immediately filed motions in Bankruptcy Court to void the "deed in lieu" and preserve the real estate transaction negotiated by 556 Holdings. Following a week of hearings in Bankruptcy Court, Jones Day ultimately negotiated a settlement with 556 Holdings' lender that voided the "deed in lieu" and reduced the amount sought by the lender by $1 million. Negotiations continued with other creditors and a "topping" bidder before the transaction was finally consummated on December 8, 2010.