As the expression goes, the value of real estate is in the eye of the beholder. Ultimately, the value is whatever the market is willing to pay. While income producing properties, particularly with creditworthy tenants, may be fairly routine to value based on the current rate of return demands in the market, non-income producing properties may be more speculative. For example, even the most seasoned appraiser may struggle with finding comparative sales for a property. A landowner might see their property value go up exponentially “if only” the city council will allow for a zoning variance. Many an owner believes that their property is in the “path of progress,” but when? Is it reasonable to value a property “as stabilized” if it is only forty percent leased? These are the types of questions we will consider. To view the accompanying webinar, go to: financialpoise.com/financial-poise-webinars/valuing-real-estate-assets-2021/

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4. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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5. Meet the Faculty
MODERATOR:
David Levy - Keen-Summit Capital Partners and Summit Investment Management
PANELISTS:
Harold Bordwin – Keen-Summit Capital Partners
Justin May - Angstman Johnson
Gary Marsh - Troutman Pepper
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6. About This Webinar
Valuing Real Estate Assets
As the expression goes, the value of real estate is in the eye of the beholder. Ultimately, the
value is whatever the market is willing to pay. While income producing properties, particularly
with credit worthy tenants, may be fairly routine to value based on current rate of return
demands in the market, non-income producing properties may be more speculative.
For example, even the most seasoned appraiser may struggle with finding comparative sales
for a property. A landowner might see their property value go up exponentially “if only” the city
council will allow for a zoning variance. Many an owner believes their property is in the “path
of progress”, but when? Is it reasonable to value a property “as stabilized” if it is only forty
percent leased? These are the types of questions we will consider.
6

7. About This Series
Fairness Issues in Real Estate-Based Bankruptcies
It does not take a complex corporate chapter 11 bankruptcy to encounter serious ethical issues that must
be confronted in a case. In fact, the relative simplicity of a real estate-based bankruptcy will shine the
light on all of the main case details, bringing increased scrutiny to all of the debtor’s actions and
decisions. Real estate-based bankruptcies are some of the most common matters filed. As an attorney,
you are your client’s advocate and need to navigate the waters to provide effective counsel while playing
within rules. In this series we tackle some common ethical scenarios that present themselves in real
estate-focused bankruptcies frequently, including matters related to valuing assets, insider lease
agreements, and Single Asset Real Estate (SARE) cases. At the end you will be better equipped to
answer questions like Is your client being astute or asinine? This this scheme clever or cagey? Under the
rules of bankruptcy, is an inside arrangement shady or shrewd?
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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8. Episodes in this Series
#1: Valuing Real Estate Assets
Premiere date: 1/26/21
#2: Insider Lease Agreements
Premiere date: 2/23/21
#3: Single Asset Real Estate Cases
Premiere date: 3/23/21
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9. Episode #1
Valuing Real Estate Assets
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10. What Are Ethics?
Webster: (noun) The discipline dealing with what is good and bad and with moral duty and
obligation; The principles of conduct governing an individual or a group; A guiding philosophy;
A set of moral issues or aspects (such as rightness)
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11. What Are Legal Ethics?
The American Bar Association (ABA) Model Rules of Professional Conduct were adopted by
the ABA House of Delegates in 1983. They supply the general ethical rules which govern the
practice of law which have been adopted by most states and jurisdictions.
A number of the Model Rules are implicated in bankruptcy cases (as they are in litigation in
general). Examples include the lawyer’s duty to bring meritorious claims, to be truthful with
the Court (and not withhold information relating to criminal or fraudulent enterprises), to be fair
to opposing party/counsel, to refrain from engaging in conduct which would disrupt a
proceeding or seek to exert undue influence on any Judge or party, and to be truthful in
statements to the Court and to others.
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12. Model Rules of Professional Conduct
• Model Rules to be discussed in this presentation:
 Rule 1.3: Diligence: Client-Lawyer Relationship
 Rule 3.3: Candor Toward the Tribunal: Advocate
 Rule 3.4: Fairness to Opposing Party & Counsel: Advocate
 Rule 4.1: Truthfulness in Statements to Others

13. Uses of Valuation in Bankruptcy Cases
• Asset Schedules
• Asset value vs. Liabilities
• Asset value vs. revenues/cash flow
• Priority of payments under Absolute Priority Rule
• Liquidation value of the company
• Adequate protection for lender
• Plan of Reorganization
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14. What are the Ways to Value Real Property?
• MAI Appraisal: Comparable Sales, Income Approach, Replacement Value
• Broker Opinion of Value: Comparable Sales, Income approach
• County Assessed Value
• Debtor’s Book Value
• Arm’s Length Offers Received
• Foreclosure Value (higher) vs. Replacement Value (lower)
• Commercially Reasonable Sale Process
• Public Auction
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15. How Does the Court Decide Issues of Valuation?
• Attorney Briefs
• Expert Witnesses
• Broker Testimony
• Buyer Testimony
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16. Ethical Situation Case Studies
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17. Over-Valuation
Donald owns a 25,000 sf conference and event center with 2.1 acres of excess property in
Florida. The building cost $5 million to build and Donald values the land at $2 million. He has
$3,500,000 in financing against the property and leases the building to an entity he owns.
When Donald bought the property he received approval for a Planned Unit Development
(PUD) from the local municipality to build a hotel onsite. This would be the only conference
center in the area with a hotel connected to it. However, Donald has been unable to secure a
developer for over 10 years. Donald’s business became distressed and he was unable to pay
his mortgage. As foreclosure neared, Donald filed for bankruptcy to invoke the automatic
stay. Donald assigned a value of $19 million dollars and stated “Fully Developed” as the
valuation method?
Are there ethical implications of this valuation method? Is this shady or shrewd?
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18. Over-Valuation
Model Rules:
Rule 1.3: Diligence, Client-Lawyer Relationship
Rule 3.3: Candor Toward the Tribunal
Definitions:
Secured Collateral: Bank’s collateral for its loan (i.e. the real estate and other personal
property)
Adequate Protection: Relief created to protect the value of a secured creditor's interests and
liens against diminution in value during the bankruptcy proceeding. The relief can be in the
form of, among other things, periodic cash payments, interest payments, or a replacement
lien on other property.
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19. Under-Valuation
Mike owns a chain of station and convenience in Indiana. He borrowed $1,000,000 against four of his
stores to purchase four more in the past 18 months. Given the financial picture of business he is paying
a higher interest rate than he would like, but he got the financing. Mike would like to buy even more
stores, but does not have the collateral and does not want to sign personally. His growth plans were hurt
further when there was a lot of construction in a part of town where many of his stores are located. To
ease the cash flow Mike stopping paying key vendors. Eventually, they started requiring him to pay in
cash, so he stopped paying his mortgage. When his lender commenced foreclosure action, he sought out
a commercial litigation “workout” and bankruptcy attorney who tried to get the bank to agree to a longer
term and lower interest rate. The bank refused, so Mike filed bankruptcy. Mike didn’t want his lender to
“get too comfortable” as he pursued a restructuring, so he valued his stores based on a nearby store that
was closed and sold for a very low price and presented a Broker Opinion of Value (BOV) from his Realtor
brother-in-law and asked his attorney to “speak with him about it”. Mike’s attorney was not comfortable
that using his brother for the BOV was an impartial source, but it was not illegal, so he did not disclose
this to the lender’s counsel and discussed his rationale.
Are there ethical implications of this valuation method? Is this asinine or astute?
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20. Under-Valuation
Model Rules
Rule 3.4: Fairness to Opposing Party & Counsel
Rule 4.1: Truthfulness in Statements to Others
Definition:
Automatic Stay: An injunction that halts actions by creditors, with certain exceptions, to
collect debts from a debtor who has declared bankruptcy. Under section 362 of the
Bankruptcy Code, the stay begins at the moment the bankruptcy petition is filed.
Plan of Reorganization: The plan of reorganization outlines how the debtor will reorganize its
business, administer its assets, make distributions to creditors and emerge from bankruptcy.
In order to move forward with the plan of reorganization, it must be voted on by the various
classes of creditors, satisfy the specific dictates of the Bankruptcy Code, and be confirmed by
the Bankruptcy Court.
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21. Suspect Valuation
Mick owns a 125,000 square foot industrial warehouse in South Carolina, which he bought for $4,500,000
with a 50% down, so he financed $2,250,000. The property is just a few years old, state of the art, right
off the highway and a close distance to a BMW automobile production plan, making it highly desirous to
vendors. Mick acquired this building through a 1031 tax deferred exchange and rents have increased so
steadily he was able to refinance the property to take $1,350,000 out, which he promptly used to buy a
dream home on the beach. Following a change in tariff policy, Mick lost a few tenants and discovered
that because other facilities in the same area had the same issue, that rents were dropping quickly. Mick
needed the income to pay the mortgage on his new home, so he stopped paying his bank. The bank,
concerned with their local reputation, did everything they could to work something out, but ultimately had
no choice but to pursue foreclosure. When Mick filed bankruptcy he scheduled the property as being
worth $12,500,000 ($100/sf) on grounds that a 3,000 sf building nearby just sold for $300,000 ($100/sf).
To prove he was serious about selling it to pay off the bank, he hired his next door neighbor to sell the
property and gave her a 1-year listing agreement.
Are there ethical implications of this valuation method? Is this cleaver or cagy?
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22. Suspect Valuation
Model Rule 4.1: Truthfulness in Statements to Others
Definitions:
Single-Asset Real Estate Case (SARE): Real property constituting a single property or
project, other than residential real property with fewer than 4 residential units, which
generates substantially all of the gross income of a debtor who is not a family farmer and on
which no substantial business is being conducted by a debtor other than the business of
operating the real property and activities incidental.
Absolute Priority Rule: Rule governing the priority of payments among creditors and
shareholders, in the event of a corporate liquidation. The absolute priority rule is used in
corporate bankruptcies, to decide the order that payments that be distributed to each party.
22

23. Notable Valuation Case Law
Bankruptcy Code 506(A): Secured Creditors Claims:
Section 506(a) of the Bankruptcy Code contemplates bifurcation of a debtor's obligation to a
secured creditor into secured and unsecured claims, depending on the value of the collateral
securing the debt. If a creditor has a claim greater than his interest in the debtor's property,
the claim is unsecured. For example, if there is a $150,000 mortgage and a $50,000 second
mortgage on a house that's now worth $125,000, the first mortgage covers the entire value of
the house.
Replacement Value Case Law
Associates Commercial Corp. v. Rash, 520 U.S. 953, 965, 117 S.Ct. 1879, 1886, 138 L.Ed.2d
148 (1997) (“Rash”), mandated the application of the replacement-value standard in a cram
down plan. The Supreme Court defined that standard as the amount a willing buyer would
pay on the open market for like property. (Followed by In re Sunnyslope Hous. Ltd. P’ship,
859 F.3d 637 (9th Cir. 2017), as amended (June 23, 2017)).
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24. Notable Valuation Case Law
Hybrid Approach Case Law
In re Heritage Highgate, Inc., 679 F.3d 132 (3d Cir. 2012), the Bankruptcy Court accepted the
appraiser’s estimation of the fair market value of the property pursuant to two well-accepted
appraisal methodologies: the sales comparison approach and the income capitalization
approach. Both methodologies yielded virtually identical estimates, but the appraiser favored the
latter approach as it more accurately considered the time and expenses related to a real estate
development.
Foreclosure Value Case Law
United Air Lines, Inc. v. Reg’l Airports Imp. Corp., 564 F.3d 873 (7th Cir. 2009), in valuing airline
terminal gates that the debtor had improved, the Court of Appeals for the Seventh Circuit
determined that foreclosure value operates to set a floor on the secured creditor’s recovery. That
court stated: “[i]f the Lender foreclosed and took over the space, it could rent the gates to United or
some other airline at more than $17 a square foot- at perhaps four times that much, to go by prices
at the airport’s one terminal that leases fully built-out gates.” Id. at 876-77.

25. Model Rules of Professional Conduct
Rule 1.3: Diligence
Client-Lawyer Relationship
A lawyer shall act with reasonable diligence and promptness in representing a client.

26. Model Rules of Professional Conduct
Rule 3.3: Candor Toward the Tribunal
Advocate
(a) A lawyer shall not knowingly:
(1) make a false statement of fact or law to a tribunal or fail to correct a false statement of
material fact or law previously made to the tribunal by the lawyer;
(2) fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the
lawyer to be directly adverse to the position of the client and not disclosed by opposing
counsel; or
(3) offer evidence that the lawyer knows to be false. If a lawyer, the lawyer’s client, or a
witness called by the lawyer, has offered material evidence and the lawyer comes to know of
its falsity, the lawyer shall take reasonable remedial measures, including, if necessary,
disclosure to the tribunal. A lawyer may refuse to offer evidence, other than the testimony of a
defendant in a criminal matter, that the lawyer reasonably believes is false.

27. Model Rules of Professional Conduct
Rule 3.3: Candor Toward the Tribunal
Advocate
(b) A lawyer who represents a client in an adjudicative proceeding and who knows that a
person intends to engage, is engaging or has engaged in criminal or fraudulent conduct
related to the proceeding shall take reasonable remedial measures, including, if necessary,
disclosure to the tribunal.
(c) The duties stated in paragraphs (a) and (b) continue to the conclusion of the proceeding,
and apply even if compliance requires disclosure of information otherwise protected by Rule
1.6.
(d) In an ex parte proceeding, a lawyer shall inform the tribunal of all material facts known to
the lawyer that will enable the tribunal to make an informed decision, whether or not the facts
are adverse.

28. Model Rules of Professional Conduct
Rule 3.4: Fairness to Opposing Party & Counsel
Advocate
A lawyer shall not:
(a) unlawfully obstruct another party' s access to evidence or unlawfully alter, destroy or
conceal a document or other material having potential evidentiary value. A lawyer shall not
counsel or assist another person to do any such act;
(b) falsify evidence, counsel or assist a witness to testify falsely, or offer an inducement to a
witness that is prohibited by law;
(c) knowingly disobey an obligation under the rules of a tribunal except for an open refusal
based on an assertion that no valid obligation exists;

29. Model Rules of Professional Conduct
Rule 3.4: Fairness to Opposing Party & Counsel
Advocate
A lawyer shall not:
(d) in pretrial procedure, make a frivolous discovery request or fail to make reasonably diligent effort to
comply with a legally proper discovery request by an opposing party;
(e) in trial, allude to any matter that the lawyer does not reasonably believe is relevant or that will not be
supported by admissible evidence, assert personal knowledge of facts in issue except when testifying as
a witness, or state a personal opinion as to the justness of a cause, the credibility of a witness, the
culpability of a civil litigant or the guilt or innocence of an accused; or
(f) request a person other than a client to refrain from voluntarily giving relevant information to another
party unless:
(1) the person is a relative or an employee or other agent of a client; and
(2) the lawyer reasonably believes that the person's interests will not be adversely affected by refraining
from giving such information.

30. Model Rules of Professional Conduct
Rule 4.1: Truthfulness in Statements to Others
Transactions With Persons Other Than Clients
In the course of representing a client a lawyer shall not knowingly:
(a) make a false statement of material fact or law to a third person; or
(b) fail to disclose a material fact to a third person when disclosure is necessary to avoid
assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.

31. About the Faculty
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32. About The Faculty
David Levy – dlevy@keen-summit.com
David is head of the Keen-Summit Capital Partners and Summit Investment Management
Chicago office. He responsible for all aspects of business development and execution in
connection with the company’s distressed debt acquisitions and opportunistic credit
transactions, plus real estate brokerage and auction, investment banking, and lease
modification and restructuring services. David has more than 13 year’s experience in real
estate advisory and transaction experience, with particular expertise in workout, bankruptcy,
and other special situations. David holds both the Certified Commercial Investment Member
(CCIM) and Certified Auctioneers Institute (CAI) designations, making one of fewer than fifty
professionals in the United States to hold both. He is a frequent speaker and moderator on
real estate restructuring programs, a member of the Turnaround Management Association
Chicago/Midwest Board of Directors, and has held various leadership roles on the American
Bankruptcy Institute Real Estate Committee.
32

33. About The Faculty
Justin May - jjm@angstman.com
Justin is a partner with Angstman, Johnson in Boise, Idaho, practices primarily in the
areas of real property, business and commercial transactions, and bankruptcy. Mr. May is a
frequent presenter at professional education programs for attorneys, real estate brokers,
agents, the Idaho Real Estate Commission, and the Idaho Tax Commission. Mr. May worked
for two years after law school as law clerk for Idaho Supreme Court Justice Jesse R. Walters.
He is a member of the Idaho State Bar. Mr. May received his B.S. from the University of Idaho
and his J.D., summa cum laude, from the University of Idaho College of Law, where he
served as Business Editor for the Idaho Law Review.
33

34. About The Faculty
Gary Marsh - Gary.Marsh@troutman.com
Gary is a veteran restructuring attorney focused on all aspects of bankruptcy, workouts,
debtor and creditor law, and general commercial litigation. He represents debtors and
creditors in Chapter 11 cases, out-of-court restructurings and litigation. He also represents
court appointed receivers, examiners and trustees. Gary’s practice primarily involves
representing financial institutions and servicers in and out of court in enforcing their rights and
remedies. He also analyzes and defends against preference and fraudulent conveyance
actions, represents buyers of assets out of bankruptcy and represents landlords and other
parties who have leases or contracts with debtors. Gary has deep industry experience
particularly with healthcare, energy and real estate insolvencies.
34

35. About The Faculty
Harold Bordwin - hbordwin@keen-summit.com
Harold is responsible for all aspects of business development and execution at Keen-Summit
Capital Partners. He focuses on the developing and implementing strategic real estate and
corporate finance plans for his clients. Those plans involve real estate analysis, real estate
acquisitions and dispositions, lease modifications and terminations, and corporate finance
and capital market services. Harold has more than 25 years of real estate advisory and
transactional experience, with particular expertise in workouts and restructurings, specializing
in strategic planning, the sale of real estate assets and lease negotiations. He has
represented financial, corporate and retail clients. As a recognized expert on real estate
restructuring issues, Harold has testified before the Judiciary Committee of the United States
House of Representatives. He has also been interviewed and quoted in numerous articles for
The Wall Street Journal, The New York Times, USA Today and various trade publications.

36. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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