If Elk Grove Promenade Developer Goes Chapter 11, Is The City On The Hook For Past-Due Fees?

The developer of the Elk Grove Promenade, Chicago-based General Growth Properties has been flirting with bankruptcy for months.

In recent weeks, some lenders have started foreclosure proceeding in several states on a variety of GGP properties. All of these proceeding, along with the lowering of their debt to ‘junk’ status, have led to a kind of parlor game in financial circles predicting when GGP will file Chapter 11.

A Chapter 11 bankruptcies in short would relieve GGP of certain obligations and be given a chance to reorganize. As part of that reorganization, vendors usually receive much less than the full amount do them.

One of those vendors is the City of Elk Grove which is owed over $443,000 by GGP. So, if GGP were to declare bankruptcy, what would happen to GGP’s debt owed to Elk Grove?

This is a question we posed to Elk Grove City Finance manager Rebecca Craig. Specifically we asked Craig via e-mail if GGP goes Chapter 11, can the city expect to recover fees and if so, what percent-on-the-dollar? We also asked if any progress has been made on collection of the fees. Finally, if there is no bankruptcy filing, will the city consider a civil suit to speed collect of the fees.

The city responded with the following statement:

”The City is currently working with GGP on a reimbursement agreement through which the City would be fully paid. The reimbursement agreement would provide GGP a reimbursement from their pre paid roadway impact fees for facilities constructed by GGP that are part of the roadway impact fee program. The reimbursement agreement, as proposed, would, however, first provide payment to the City for any outstanding balances owed by GGP to the City. “

If we correctly parse this statement is seems to say the city will reimburse GGP for their pre-paid roadway improvements. GGP in turn will repay the city to satisfy their obligation.

Seems like a standard accounting entry. Why hasn’t it been consummated?

It probably has not been consummated because GGP is short of cash and fighting for its life. The last thing on the mind of it’s big dollar executives in Chicago is some half-completed strip center in some Podunk Central Valley California cow town.

Likewise, the city may not want to reimburse as it rightfully fears it will never get the money back.

The question still remains: If GGP goes Chapter 11, will this reimbursement agreement be set aside in bankruptcy court and will the taxpayers of Elk Grove be on the hook for close to half million dollars?

We are pretty sure we will know by the time the green weeds surrounding the Elk Grove Promenade today wither under the sun of the coming heat and turn them brown.