A bankruptcy trustee is ready to sell the old McNally Smith College of Music building next month to ensure there will be some money left for hundreds of employees and students.
Just last month, trustee Patti Sullivan was optimistic she’d find a buyer by the end of the year who would beat an offer from Exchange Street Partners, the group of investors who bought the bank mortgage.
That’s no longer the case.
If Sullivan can’t get a better offer by June 18, she intends to sell the downtown St. Paul building, along with restaurant and auditorium equipment, to the investors for about $5 million. The sale would pay off the mortgage, a Small Business Administration loan and three mechanic’s liens.
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What’s left would be $60,000 and any proceeds from the sale of additional property inside the building, estimated to be worth about $400,000.
Those proceeds would go toward $6.5 million in unsecured claims from more than 200 unpaid employees, businesses and others, including students who prepaid tuition before the for-profit school suddenly closed in December.
A bankruptcy judge will consider objections to the sale at a June 13 hearing in St. Paul.
In a court filing, Sullivan explained why she’s lost her optimism about selling the school.
Her previous plan was to pursue buyers for 19 E. Exchange St. through the end of the year. But the estate is spending about $35,000 a month to maintain the building while racking up additional attorneys’ fees, mortgage penalties and interest. A building sale is no sure thing and would come with broker costs, which is not the case if she sells to Exchange Street Partners.
“In sum, the proposed sale could save the estate approximately $1 million in administrative expenses and interest on secured debt,” compared with selling to some other party early next year, Sullivan’s attorney, Chris Camardello, wrote to the court.
By selling to the investors next month, Camardello wrote, “the unsecured creditors receive a guaranteed distribution. Without it, that return may be negligible at best.”
The court filing reveals Sullivan met with several prospective buyers who bowed out for one reason or another, including:
The city of St. Paul, which sold the building in 2001 to college founders Jack McNally and Doug Smith, has until June 10 to match Exchange Street Partners’ offer for the building.
City planning office spokeswoman Hannah Burchill said the city is “very interested” in the building’s future.
“We are currently waiting on the determination of the bankruptcy filing before making any decisions, and are reviewing documentation as it arrives,” she said.
With no good prospective buyers, Sullivan turned her attention toward listing the property with a real estate broker. After six interviews, she determined her best offer was the one before her, from Exchange Street Partners.
The most optimistic broker suggested a list price of $6.9 million but didn’t expect it to sell anytime soon. Brokers cited the building’s lack of parking and windows, St. Paul’s high vacancy rate, rising interest rates and the likelihood that a buyer would have to spend heavily on renovations.
“In sum, continuing to market the Property could impose close to $1 million in expenses, and that assumes that the trustee can even find a bona fide buyer,” Camardello wrote.
“In fact, there is no guaranty that the trustee will ever be able to find such a buyer. Either way, there will be little if anything left for unsecured creditors as the secured claims continue to increase during this period.”