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In February 2024 I contacted Steve Horn of Ian Black Real Estate and asked him to find me a buyer for an undeveloped, one-acre outparcel at the Galleria Plaza. I had previously engaged Steve in 2019 to find a lessee for a ground lease of this outparcel, Steve quickly brought us Fifth Third Bank, with whom we executed a long-term ground lease in February 2020. Within four weeks of entering into this transaction it became clear that COVID would be a major problem. Fifth Third invoked the force majeure provision in the contracts in June 2020 and exited the transaction.
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Steve again quickly brought us a prospective purchaser for the outparcel. GH&G, a retail developer that acquires undeveloped parcels like ours and then shops them to retail and franchise tenants. We signed a letter of intent with GH&G on February 24, 2024.
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I had not been in contact with FH about the swap transaction since November 20 of 2023. In anticipation of entering into a sale transaction for the outparcel, I emailed FH once more regarding the swap on February 20, 2024. This email was a belated reply to Brandon Johnson's email of November 20, 2023, in which FH merely reiterated their absurdist interpretation of the swap contract. My email concluded as follows:
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"There is a fundamentally divergent interpretation of the swap agreements by the parties. We are prepared to have our attorneys communicate with yours, but we will not pay for your attorneys. I have every reason to believe that this matter could be quickly resolved, in part because we see absolutely no support whatsoever in the swap agreements for FH’s contention that the swap balance would reamortize upon a partial prepayment of the mortgage loan."
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I can find no record of having received a reply to this email.
I emailed Brandon Johnson on May 3, 2024 informing him that we expected to be entering into a contract to sell the undeveloped outparcel and would require FH's consent to the transaction.
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On May 9, 2024 I received an email from Brian Simmering. Simmering began by informing me that Brandon Johnson and John Coffey were no longer with FH, and then introduced me to Michael Lopes, my my new FH "portfolio manager." Simmering adverted to the land sale transaction only long enough to segue to the issue of the swap agreement. A table in his email reflected that the swap balance would be reduced by application of the land sale proceeds to pay down the loan. By effectively cashing out our swap position to the extent of $1 million GPLLC would receive a payment from FH of $83,600.
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I did not reply to Simmering's email. I was not inclined to indulge any further FH's bad faith reading of the swap contracts.
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I received an email from Michael Lopes on May 24, 2024 that referenced Simmering's email of two weeks prior regarding the swap and the implications of a loan prepayment. I did not reply to Lopes' email. I believe it was my refusal to reply to Simmering's and Lopes' emails that caused FH to correctly infer that the sale of the outparcel was part of GPLLC's plan to prepay the mortgage loan by $3 million to $3.5 million.
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On June 12, 2024 I received an email from Carla Kuzynowksi introducing herself as my new relationship manager at FH. I met Kuzynowski for the first time at the Galleria Plaza on July 19, 2024. I had executed the land sale contract and handed her a copy. I then took the opportunity to explain that FH's stance on the swap agreement was utterly unreasonable and that this issue had to be resolved as soon as possible. Kuzynowski, as would be her practice, completely ignored my attempt to discuss the land sale transaction and tried to sell me a CDMMA, suggesting it would be a great use of the land sale proceeds. I told her we'd prefer to prepay the mortgage loan but for FH's baseless insistence that the swap balance would be reduced.
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​The land sale contract with GH&G was fully executed on July 22, 2024. Kuzynowski never asked for a copy of the fully executed contract, nor did she ever mention the land sale transaction in any of her approximately two dozen emails to me between June 12 and September 19. Further, she consistently ignored my attempts to discuss the land sale with her. It is apparent in retrospect that Kuzynowski had been informed by Simmering that the land sale contract was a dead letter.
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On August 28 I emailed Kuzynowski reminding her that we needed FH's consent to the outparcel transaction before the purchaser would begin his substantial site due diligence. She replied, "Where have you been? I've been trying to call you. Time to catch up?" We spoke on the phone shortly thereafter. Kuzynowski did not acknowledge my request regarding FH's consent.
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I was contacted for the first time about an appraisal of the Galleria Plaza on September 4, 2024, just eleven days before the deadline in our land sale contract for procuring FH's consent expired on September 15.
Selling the outparcel for $1 million and applying the proceeds to pay down the loan would convert FH's collateral from an undeveloped, negative-income producing plot to $1 million in cash. It was a risk-free transaction for FH and an appraisal of the plaza was irrelevant. Certainly an appraisal of the undeveloped outparcel would be appropriate, however the appraiser was not even aware of the outparcel transaction until I informed her of it on October 23. Furthermore, she never requested a copy of a site plan for the outparcel, nor did she discuss the outparcel with me, and therefore could not have been aware of the extraordinary site development costs that reduce the value of the outparcel.
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FH's decision to conduct a superfluous appraisal of the entire plaza further suggested to me that FH would attempt to delay or withhold consent to our outparcel sale until I acquiesced to their bad faith interpretation of the swap contracts. I contacted Steve Horn and told him we'd need an extension of the FH consent deadline, which the purchaser readily provided, extending the deadline to November 15, 2024.​
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I emailed Kuzynowski on September 19. The email reads in part:
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I am very concerned that First Horizon appears unwilling to provide the consent to the sale of the undeveloped outparcel unless we agree to dedicate the proceeds of the sale to paying down the loan. The problem is that we have a swap with FH’s affiliate that is paying us approximately $250,000 a year, and when we discussed earlier this year partially prepaying our mortgage loan, our FH swap counterparty insisted incorrectly that any prepayment of the loan would terminate the swap.
Is compliance with the DSCR a condition of FH’s approval of the sale of the outparcel? I need to know this as soon as possible. Again, it was NOT a condition to FH refinancing our loan in 2020 for over $7 million.
I require immediate assurance that the outparcel sale will be approved, that Gondolier will not be required to pay down the loan with the proceeds, and that our swap agreement will remain in place.
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When I did not receive a prompt reply from Kuzynowski I sent a lengthy and scathing email to Simmering on September 19, 2024. Prior to that date I was unwilling to believe that FH would attempt to block the land sale transaction. It seemed too reckless and irrational an act for a major financial institution.
I as much as accused FH of tortious interference in this email:
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First Horizon is now indicating that its consent to the sale of our outparcel is conditional upon our agreement to apply the proceeds of the sale to paying down the mortgage loan. I have explained to Carla Kusynowski that FH’s affiliate will then terminate the swap, which has paid GPLLC for the last few years approximately $250,000 per annum. To date, neither Ms. Kuzynowski nor anyone else at FH has expressed any concern about this situation.
I am beginning to become very concerned that FH's principal objective is to get out from under this swap agreement. I find it difficult to believe, but the circumstances are increasingly allowing for no other conclusion. I practiced corporate law in NYC for 25 years in the area of asset backed securities and derivatives, including swaps, and never encountered such a brazen attempt by a financial institution to breach its swap agreement.
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Simmering replied and nonsensically assured me that FH was "not trying to hold the Swap agreement in place." He then stated "We do not have to unwind the whole swap, just the portion that is being paid down."
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I responded to Simmering the next day, starting my email with "This is less than reassuring. Under the circumstances, I find your response cavalier." I once more argued that FH's stance on the swap was utterly insupportable, and closed by posing the following question to Simmering:
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GPLLC is prepared to agree to pay down the loan with the proceeds of the sale of the outparcel provided FH agrees that there will be no modification of the notional principal balance of the swap. Is that acceptable?
I never received a reply. GPLLC had no further communications of consequence with FH until November 13, 2024.
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