Hill Country Galleria owners and noteholders are on the verge of executing a two-pronged plan of reorganization designed to secure either new ownership or foreclosure in the coming weeks.

The property has been operating under a Chapter 11 automatic stay since it filed for bankruptcy in of May 2009.
Several potential investors officially registered their request Jan. 8 to attend an auction of the property Jan. 15 that Austin lawyers Eric Taube and Mark Taylor will conduct, said Joel DeSpain, owner representative and asset manager. Potential bidders were required to place $6 million in escrow to validate their interest.
The minimum bid will be $60 million, and bids will be accepted in $500,000 increments. DeSpain declined to comment on the property’s estimated value.
If there is a qualified offer, it will be reviewed for approval by the bankruptcy court the following week to sell the property, which is at Texas 71 and RR 620 in Bee Cave. If their request goes through, the sale is scheduled for Jan. 29.
“We’ve exposed the property to dozens and dozens of people and have had a lot of them visit the property. There were many major league investment groups [among them],” DeSpain said, noting his surprise that marketing firm Holliday Fenoglio Fowler reported more than 200 requests for information packets.
On Monday, the Hill Country Galleria was listed for foreclosure. If the sale is not completed, the property will transfer to the banks Feb. 2. Bank of America is the principal lender among a group that includes: Guaranty Bank; Sovereign Bank; Landesbank Hessen-Thiiringen Girozentrale; Key Bank National Association; National City Bank; The Northern Trust Company; MidFirst Bank; and Bank of the West.
These simultaneous courses of action are part of a designed plan that has been thoroughly researched, DeSpain emphasized. He shared the potential sale and foreclosure plans with about 40 tenants at a regularly scheduled quarterly meeting last week that was held early because of the events set to transpire soon.
“In the event the sale doesn’t go through, the owners of the property and the lender have agreed the property will transfer to the lender,” he said. “It’s too important of a property to not have an organized plan of transfer, so that’s why we’ve done it this way.”
Art Attack and Learning Express Toys, two locally owned tenants, said they favored a new owner purchasing the property rather than a bank operating it, but expressed relief that an end is in sight.
“That was very positive to know that by the end of January we will have an answer. It’s good news either way,” Learning Express co-owner Mike Schlageter said.
“At this point, anything that happens would be better than the state that we are in,” Art Attack co-owner Linda Racino said.
Both Schlageter and Racino said a new owner would be more aggressive about signing new tenants to leases. They pointed to The Shops at Galleria, which is a retail center across Texas 71 from Hill Country Galleria that has landed several restaurants since spring 2009 by adopting a more aggressive leasing strategy.
“The guys that own that center have done a fabulous job of getting people in there,” Racino said.
No matter the outcome of Hill Country Galleria’s plan, DeSpain said both tenants and shoppers should benefit from the influx of new money into the retail center. He explained that the current ownership group had money to spend on maintaining the retail and office center, but lacked resources to make capital improvements.
An existing Chapter 380 agreement with the City of Bee Cave will carry over to the new owner, DeSpain said, but the city has re-filed a limited objection to the proposed sale based upon claims that Hill Country Galleria owners owed the city $135,986 for overpaid sales tax rebates and the Texas Department of Transportation $484,000 for Texas 71 road improvements.
Bee Cave City Manager Frank Salvato said the city would have no objections to the sale as long as the new owners comply with the Chapter 380 agreement.
“We’ve worked very well with Hill Country Galleria owners in the past, and we hope that we can work with whoever ultimately owns the property the same way,” Salvato said. “We are going to work to get this behind us and move forward.”
Hill Country Galleria comprises 490,000 square feet of retail space (70 percent leased) and 144,000 square feet of office space (10 percent leased). Dillard’s and Alexan Galleria Apartments are not part of the property for sale.
Last fall, primary partner Opus West Corp. sold its interest in Hill Country Galleria to the remaining owners, which include Christopher Milam and Lincoln Properties, and property management transferred to Lincoln Properties. Operations and employees have remained the same throughout the transition.
“Even though we’ve had all these changes, we’ve been able to keep stability of the employees,” DeSpain said.
In July 2009, Opus West Corp. and some of its subsidiaries filed voluntary petitions for Chapter 11 reorganization under of the U.S. Bankruptcy Code in order to facilitate an ongoing financial restructuring.
John Greer, chief restructuring officer of Opus West, said the bankruptcy filings were made necessary due to steep and pervasive declines in commercial real estate values and persistently difficult credit market conditions.
“While we began slowing the pace of new development nearly two years ago in anticipation of difficult market conditions, we must now take additional measures to enable an orderly wind down of our portfolio, protect asset values and maximize returns on lenders’ investments,” Greer wrote in a company press release.
Austin’s retail industry has fared well compared with business in other areas of the country, but many retailers are still struggling.
Since the bankruptcy filing last year, several tenants, such as Talbots, Fish City Grill, Team Spirit and Finish Line have closed permanently, but new tenants such as Amy’s Ice Cream and Twin Liquors have opened in the center. To Die For Fashions and Verizon have recently signed leases, DeSpain said, and several prospects are inquiring about the former Fish City Grill location.
The U.S. retail economy continues to suffer losses of 20 percent to 40 percent, DeSpain estimated.
“It’s a very challenging time,” he said. “The reports that say the recession ended last summer are laughable. Most people in the retail and restaurant business will tell you it’s still ongoing.”
Both Racino and Schlageter said Hill Country Galleria is poised to take advantage of any improvement in consumer spending.
“We just need a little ray of light,” Racino said.