Sunday, May 1, 2011

Realty Execs set to file for Chapter 11

In a reversal from statements a week earlier, Realty Executives Inc. confirmed Friday that it intended to file for bankruptcy protection "within the next 48 hours."

Employees and agents for Realty Executives were told Thursday about the plan to file for Chapter 11 reorganization in U.S. Bankruptcy Court.

The announcement to staff and contractors came just eight days after Rich Rector, Realty Executives owner and executive chairman, had issued a staffwide memo reassuring personnel that the firm was financially stable.

Realty Executives is based in Scottsdale.

Rector said in the April 20 memo that the company had struggled to make its lease payments on branch offices.

Realty Executives spokeswoman Andrea Kalmanovitz provided The Arizona Republic a copy of the memo on April 21.

One reason for the memo was to allay agents' concerns over being locked out of their offices after the company had missed payments on some of its commercial leases.

Rector said in the memo that the company was trying to resolve the lease problem by working with property owners to negotiate lower payments.

"We have a plan in place and are working to complete this process with our various landlords," he said.

He concluded by saying, "We have a history to be proud of and an exciting future ahead. Realty Executives is here to stay in Arizona and worldwide."

The memo did not mention bankruptcy.

Realty Executives has 1,230 licensed agents in Arizona, ranking No. 4 in the state. It also is among Arizona's largest real-estate firms in terms of local sales volume.

The company currently is facing two potentially costly lawsuits. One was filed in late March by the owner of its Pinnacle Peak office, Montana-based Saypo Cattle Co., which claims that the company vacated the facility without notice in the middle of the night and that it had not made a lease payment since November.

The Saypo complaint, filed March 31, seeks about $143,000 in past-due lease payments, as well as damages for breaching the Pinnacle Peak lease contract, which the lawsuit says was not set to expire until May 2014.

It also accuses the company of fraud, arguing that Realty Executives staff vacated the building just a few weeks after negotiating a lower lease rate.

The other lawsuit is a counterclaim filed by former Realty Executives President John Foltz, who alleges in his Maricopa County Superior Court complaint that Rector and other top officials invented a story that Foltz had committed a variety of crimes and unethical practices after he refused to take a pay cut.

The company has accused Foltz of a number of violations of his former employment contract, including theft and mismanagement.

Foltz has denied the allegations. His counterclaim seeks damages for defamation of character, in addition to months' worth of unpaid compensation.

Foltz's lawyer, Phoenix attorney Daniel Kloberdanz, said on April 21 that he had received calls from Phoenix consulting firm MCA Financial Group informing him that Realty Executives had hired the firm and was considering Chapter 11 bankruptcy.

Asked on April 21 about the possibility of bankruptcy, spokeswoman Kalmanovitz responded via e-mail:

"Rich did hire MCA Financial . . . but not to pursue restructuring. MCA has a great reputation in town for their ability to streamline operations within a business and came highly recommended to Rich. He has been using them as a consultant to support him with such things as lease negotiations."

She said Friday that the bankruptcy decision had been made within the past week.

by J. Craig Anderson The Arizona Republic Apr. 30, 2011 12:00 AM

Realty Execs set to file for Chapter 11

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