Miles Properties Inc. and 12 affiliated companies filed for Chapter 11 bankruptcy protection due to an involuntary Chapter 7 bankruptcy petition filed against the Miles Properties' owner Daniel J. Miles. Daniel Miles has since converted his case to a Chapter 11 bankruptcy.
The 20 largest creditors in the case have claims worth more than $18 million. Wachovia Financial Services, the largest creditor, has a $10.5 million claim that includes an aircraft loan guaranty. Wachovia in October increased the amount of Miles Properties' cash flow required to be held in reserve, which affected the company's working capital.
Miles Properties has 15,000 to 20,000 residents who have not yet been affected by the Chapter 11 bankruptcy filing; but it is not clear yet if they will be affected in the future and if so, how. Right now, Miles Properties is saying that they are struggling to pay their employees and are need of immediate concessions from creditors in bankruptcy to continue doing business.
Miles Properties has about 228 employees and manages about 9,000 units at 36 different apartment complexes nationwide. And their nationwide operation is not unusual. Will we see more renters impacted by Chapter 11 bankruptcy filings of distant owners and management companies? Probably. The credit crisis is exposing the fragile network of owners in the commercial real estate industry. And that fragile network is at risk of crumbling in the face of contracting credit and declining occupancy rates.
And although renters have some protections from immediate evictions in the case of a foreclosure, sale or bankruptcy liquidation, they still are faced with the unpleasant prospect of moving at a time when many Americans' credit scores are damaged by late payments and defaults. How will those renters impacted by an owner's bankruptcy find new landlords who are willing to take a risk on someone who is living off of unemployment insurance or struggling to pay their bills?