A nonprofit organization, a HUD apartment building in coastal Florida and a lender owed $25 million have all found themselves in one spot, which at first glance seems quite unlikely: U.S. Bankruptcy Court in Omaha.
It is a curious tale of financial woe filed in April by Waterstone at Panama City Apartments, a 264-unit building built in 2008 through the U.S. Department of Housing and Urban Development, which insures loans made through approved lenders for housing projects that meet certain guidelines.
The Chapter 11 filing, which seeks to reorganize the debtor's finances under court protection, wound up in Omaha for what appears to be a simple reason: the owner of the Waterstone apartments is Tapestry Group, an Omaha-based nonprofit organization that describes itself as a private foundation “operated exclusively for charitable and educational purposes within the meaning of Section 501(c)(3) of Internal Revenue Code.”
The bankruptcy debt is sizable: $25 million. There has not been a Chapter 11 filing of that size in U.S. Bankruptcy Court in Omaha since June 2009, according to federal court records, when ethanol producer Mid American Agri Products filed a petition listing $50 million to $100 million of debts.
Also notable is the silence surrounding the case. None of the lawyers representing debtor Waterstone and main creditor Lenox Mortgage have responded to requests for interviews or information. The interim president of Tapestry Group, Edward “Gene” Wilczewski, had no comment, other than to say via email that Tapestry itself is not bankrupt.
Wilczewski failed to respond to numerous other inquiries, including the address of the Tapestry nonprofit and where members of the public could review its financial statements as required by the IRS.
Wilczewski may be remembered in Omaha as one of the original developers of the Knolls residential area near 108th Street and West Maple Road that struggled financially in the mid-1980s and who, with the company Brighton Investments, in the early 1990s attempted to build an apartment complex on a wetlands area.
As for the Florida project, Tapestry Group started in Panama City with high hopes. Here is how the organization describes its mission on its website:
“To support and encourage the building of better communities by providing quality rental housing for the vital residents who work within the community in supportive positions, i.e. teachers, police personnel, fire department and EMS personnel, office/retail workers, military personnel in need of off base housing, etc.”
In 2008, Tapestry broke ground on the Waterstone project in Panama City, a resort town on the Gulf Coast. The Panama City News Herald reported that the loan came from a Florida lender called Column Group and was insured by HUD under a program designed to create housing for people with incomes up to 120 percent of the median for the area.
“All of debtor's real property and other assets, including but not limited to an assignment or rents, were pledged as security to HUD for payment of the mortgage note,” reads a filing in the bankruptcy.
Ryan Durant, listed as president of Tapestry at the time, told the Panama City newspaper the program was for area newcomers, young professionals and others wanting to own a home but who “just aren't quite there financially.” Attempts to reach Durant were unsuccessful.
Sometime later — court documents don't make it clear exactly when — the apartment building opened for business. The mortgage made the rounds, too, being sold from from lender to lender.
In August 2012, HUD sold the loan to Lenox Mortgage, the current owner of the loan.
And that is when things appeared to go bad. Waterstone said in a filing that Lenox immediately foreclosed, citing payment default. An earlier lien secured by another creditor froze some bank cash, Waterstone wrote. In foreclosure in Florida state court, and bereft of operating cash, bankruptcy protection was the best option, the Waterstone filing says.
Others have a different version of events. An executive at Lenox's managing company said in a bankruptcy court affidavit that Waterstone started missing payments in November 2011, almost a year before the loan was sold by HUD. Also, the executive said, Waterstone had racked up $1.2 million of liens against it.
In addition, the executive said in his sworn legal statement, Waterstone failed to hand over its books and records when asked to do so.
The apartment complex, still in operation, is managed by a company hired by Tapestry called Lane Management, court records show. That company received court permission to use some cash on hand to keep things running.
Court records also show that Lane Management hired a company called Charter Group of Arizona to assist as “consultant and market adviser.” The president of Charter Group of Arizona, bankruptcy filings show, is Wilczewski, who is also interim president of Tapestry Group, the owner of the Waterstone apartments.
The bankruptcy judge approved a request for Wilczewski to give sworn testimony to lawyers for Lenox Mortgage, which asked for the production of detailed financial records.
There are others watching the case closely. One is Tennessee-based general contractor Construction Enterprises Inc., which won a $510,000 judgment, and another is a federal judge who found Waterstone and Tapestry in contempt of court for breaking the repayment agreement.
Another party that might have a stake in the outcome is Panama City. In August 2012, the Panama City News Herald reported that Waterstone and Tapestry had made no payments as agreed on a $64,000 loan made by the city to extend municipal water lines to the apartments.
It's unclear where Tapestry Group is now located. The bankruptcy filing lists the address as 17220 Wright St., as do years-old financial statements that show the exact location as in Suite 200. The space is now occupied by a company selling nutritional supplements.
Through it all, interim president Wilczewski maintains his optimism.
“Tapestry is not filing bankruptcy nor is it a failure,” he wrote in an emailed response to queries by The World-Herald.
Contact the writer: