Item 3. Legal Proceedings
Item 3. Legal Proceedings.
For a description of the Company’s legal proceedings, see “Note 10. Commitments and Contingencies” to our consolidated financial statements included in this Annual Report on Form 10-K. In addition, the Company is party to the legal proceedings set forth below.
Loan Fraud Lawsuit
On July 26, 2022, the Company (through a subsidiary) filed a lawsuit in the District Court of Dallas County, Texas, against, among others, the borrower, the individual sponsor of the borrower, and the guarantors under a first priority mortgage loan that the Company, along with a separate fund affiliated with the Company's external manager, originated in April 2022. The original principal balance of the Company’s loan is $113.2 million. The loan is secured by a portfolio of twenty-four properties that are net leased to Walgreens (the “Collateral Properties”). As described in more detail in the complaint filed in Dallas County, in July 2022, the Company determined that the borrower had provided the Company with numerous falsified and forged documents in connection with the underwriting of the loan. Such documentation significantly and fraudulently inflated the purported value of the Collateral Properties by misrepresenting the rent rates and maturity dates of the Walgreens leases at the Collateral Properties, among other things. On July 27, 2022, the court issued a temporary restraining order freezing the assets of the borrower, the borrower’s sponsor and his parents, and any proceeds from our loan, pending the next scheduled legal proceeding in August 2022. The Company also reported the fraud to criminal authorities and is assisting such authorities with their consideration of the matter. On October 10, 2022, the District Court of Dallas County entered a judgment in favor of the Company and its affiliated fund against the Borrower, the sponsor and certain of his family members, and certain related companies involved in the fraud, in the amount of $158.6 million, with $1.0 million of additional exemplary damages against the Borrower and $3 million of additional exemplary damages against the sponsor. In addition, the Company has commenced foreclosure proceedings against its collateral properties. As of the date of this filing, the Company has taken title to fourteen collateral properties in Alabama, Tennessee, Mississippi, Nebraska, North Carolina, Missouri and Maryland. The Company has also commenced and intends to continue to pursue all available legal remedies as set forth in the complaint against any party determined to have been involved in, or that improperly benefited from, the scheme. The collectability, if any, of amounts of legal judgments we have achieved to date and that we may achieve in the future is not currently determinable.
Williamsburg Hotel Bankruptcy Case
The Chapter 11 bankruptcy case of 96 Wythe Acquisition LLC, the entity that owns The Williamsburg Hotel in Brooklyn, New York, remains pending in the United States Bankruptcy Court for the Southern District of New York. On March 28, 2022, the Company (through a subsidiary) filed a motion to replace management with a Chapter 11 Trustee based on, among other things, fraud and mismanagement of the bankruptcy estate. On May 27, 2022, after a trial, the Bankruptcy Court granted the Company’s motion and installed a Chapter 11 trustee. On January 26, 2023, the Bankruptcy Court entered an order approving the sale of the hotel for $96 million; provided that an expected net distribution to the Company’s subordinate participant, the payment of certain transaction and administrative expenses, and external events outside the Company’s control including timing of closing of the sale, currently expected in 2023, would reduce the Company’s recovery.
Item 4. Mine Safety Disclosures.
Not applicable.
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