WeinPlus Saves Investment Company Over $2 Million Dollars

Background

In November 2009, Forge Capital Partners, a Tampa-based commercial real estate investment company, had a major development project on the verge of coming to a complete stop. Hurt by the economic downturn, Forge’s site contractor for a $12 million, 55,000 square-foot grocery-anchored retail project had filed Chapter 11 bankruptcy and ceased paying subcontractors working on the site. As a result, Forge was having difficulty collecting reimbursements it was owed from both the city and the development’s major tenant. Forge’s investment was faced with significant losses, liens, or worse, foreclosure.

Robert Moreyra, Managing Principal of Forge Capital Partners, was introduced to Rachel Elias Wein, Principal of WeinPlus Real Estate Advisory Services, through a mutual friend that same month. Wein had a rare combined background in accounting and technical construction and Moreyra was intrigued by her expertise in fixing troubled construction projects. “Once I met Rachel and discussed her background, I knew WeinPlus would be perfect for the job at hand,” Moreyra says.

To start, Moreyra gave Wein several documents to review, including contracts and leases associated with the project, and asked her to look for opportunities to save Forge money. Wein immediately identified several ways Forge could cut losses, collect reimbursements, and negotiate new contracts that would prevent the firm from paying unnecessary fees. Moreyra hired WeinPlus immediately.

“My firm is very familiar with bankruptcy situations and technically we could have done this on our own,” Moreyra says, “but it would have distracted us from our primary investment business. With WeinPlus on board, I knew it would keep our firm focused on deals that could yield a higher return on investment.”

Solution

Over the next year, Wein worked closely with Moreyra and his team to limit Forge’s losses on the construction project. The work was carried out in three phases:

Phase 1 – Bankruptcy Assistance:
Wein conducted a thorough evaluation of Forge’s relationship with the beleaguered contractor, including combing through the 30-page contract, progress payment applications, change orders, and supporting documents to ensure Forge was not overpaying anyone involved in the project, especially subcontractors.

WeinPlus ensured the contract in place was appropriately followed, especially now that the contractor had stopped overseeing construction. When the time came to fire the contractor, they identified ways to properly terminate the contract and avoid legal challenges. WeinPlus also worked with the contractor’s attorney, CFO, and trustee to save Forge as many costs as possible and successfully recovered the 10% retainage that Forge had contractually agreed to withhold until work was complete.

“If we had been passive with the construction company we would have failed because they had no incentive to deliver,” Moreyra says. “In these situations you have to step up and come up with a proactive solution.”

At the same time work was winding down with the bankrupted contractor, Wein oversaw a smooth transition to a replacement, assisting in negotiations and ensuring that the new contract protected Forge from future legal complications.

Phase 2 – Public/Private Partnership:
Forge was owed reimbursements from the city for a nearly-built road, but collecting the progress payments proved difficult after the contractor filed bankruptcy and was subsequently fired from the project. Forge could only be reimbursed for payments that had been made, and documenting those payments – and submitting them to the city – had turned into an administrative burden. Wein coordinated the overall reimbursement process including finding new ways to dialogue with city officials.

“The city reimbursements seemed straightforward but I knew they required an incredible amount of time and forensic work, and I didn’t want anything to go wrong,” Moreyra explains.

WeinPlus spent months working with subcontractors to segregate invoices in order to prove that Forge was getting reimbursements from the city in the correct amounts. Wein established relationships with a local government agency that was withholding money Forge thought it was entitled to.

“The goal was to arm ourselves with information so that when the government asked for proof, we were able to respond in a very expeditious manner,” Moreyra says. “Our weapon was information, lots of detailed, verifiable information.”

Phase 3 – Anchor Tenant Reimbursement:
The anchor tenant owed additional reimbursements to the developer. LEED certification costs and construction utilities could be recouped if Forge could collect, tally, and demonstrate numerous payments. Wein tackled this task and worked with the anchor tenant to prepare documents to maximize reimbursements.

Forge’s relationship with the grocery store anchor tenant was critical…and sensitive. The two companies were entering into a 20-year lease and there were opportunities for the grocer to be a tenant in other Forge-developed shopping centers.

“This was a kid-glove situation,” Moreyra says. “We wanted to extract from them a larger payment than they were initially willing to give us, but we didn’t want to damage the relationship.”

Wein documented the reimbursements Forge thought the grocer owed, and worked to build a strong and trusting relationship with the tenant to collect the funds while protecting future partnerships.

Outcome

Wein was able to recover or save over $2 million dollars for Forge, including:

• $250,000 in defrayed contractor costs
• $1.3 million for roadway reimbursements from the city
• $500,000 in reimbursements from the anchor tenant

“We inevitably got the money we thought we were entitled to from the city and from the anchor tenant, and saved money we would have lost with the original contractor,” Moreyra says.

Reflecting on the partnership, Moreyra says that hiring Wein was the right choice – her expertise and skills saved Forge time and money. “The situation we found ourselves in wasn’t something we planned for,” Moreyra says. “But doing nothing wasn’t an option. Retaining a consultant with expertise in complicated construction projects was well worth the cost. Rachel’s fee was about 5% of the recovery, or a 20-fold return.”

Moreyra never considered hiring a fulltime employee to tackle the problem –“too expensive”— and only felt comfortable working with a specialist with knowledge of finance, accounting, and construction. “These are complex situations and you’re dealing with a lot of different entities and situations,” he says. “You need an expert.”

Moreyra says Wein brought much to the table. “One of Rachel’s best assets is her ability to assimilate a lot of information and organize it extremely well, which paid off big in the end,” Moreyra says. Moreyra points out that Wein freed up time so he could focus on other priorities. “There was no way I could have done what Rachel did from a time standpoint,” he explains.

Moreyra also feels Wein kept the firm on track. “Without Rachel, we could have gone from being real estate people to litigation people, and that’s not what we do,” Moreyra says. “We could have been dragged into a litigation mess that has nothing to do with our core business.”

While Moreyra hopes never to find himself in a similar situation on a construction project, he has no doubt he’d call WeinPlus if challenges arise in the future. “They are our go-to resource,” he says. “We also plan to work with Rachel on projects that have a certain level of complexity she can tackle, not necessarily just ones where something has gone wrong.”