Conrad Cafritz, the Washington real estate investor who has been fighting to stay out of bankruptcy, owes $1.1 billion to about 70 lenders and estimates that he could raise only $754.5 million if he were forced to sell his property this year, according to a confidential proposal Cafritz has given his creditors.
Cafritz, who has fallen behind on interest payments, has asked the lenders to give him at least until the end of 1993 to sell or refinance his holdings. Cafritz predicted that if his plan were accepted by the creditors, some lenders eventually would recoup 89 cents on the dollar while most would recoup more.
"We've been working very hard at this and we expect that the plans we are laying out ... will be well-received," Cafritz said in an interview yesterday.
Sources said that while lenders generally are inclined to negotiate a "workout" agreement with Cafritz, some have rebuffed elements of his initial proposal.
In his three-volume presentation to lenders, dated in early June, Cafritz proposed that, in addition to getting salaries, he and his key executives receive "incentive compensation" that could total $15.6 million for carrying out the proposed three-year reorganization plan.
"This incentive will motivate us to make every effort to maximize your recovery throughout the course of the plan," Cafritz wrote in a letter accompanying the proposal.
Although it is not unusual for some incentive compensation to be paid in such situations, a number of creditors are said to object to the amount of incentive pay Cafritz is seeking.
The Cafritz proposal reveals his stake in a far-flung collection of shopping centers, apartment buildings, hotels, industrial parks and office buildings -- about 120 properties altogether. The properties include the Georgetown Inn hotel, the Holiday Inn Crowne Plaza in Crystal City and the site of the Freestate Raceway track in Laurel.
Of his approximately $1.1 billion in loans, Cafritz has personally guaranteed more than $500 million, one source said, meaning that lenders can go beyond individual Cafritz enterprises to seek repayment of those loans from Cafritz himself.
"Virtually everything he owns is at jeopardy right now," the source said.
In his proposal to the lenders, Cafritz asked that some of his wealth be sheltered from creditors, including his interest in a trust created by his father and his interest in a pending lawsuit he filed in June 1989 challenging the will of his mother, Gwendolyn Cafritz. It is unclear what legal rights lenders might have to those Cafritz interests.
Cafritz's fate is in the hands of lenders on three continents, including such prominent local institutions as Perpetual Savings Bank, American Security Bank, Crestar Financial and Signet Banking, each of which lent Cafritz tens of millions of dollars.
A number of banks and other creditors have been organizing a committee in an attempt to coordinate the "workout" plan -- a process likened by one lawyer to a Chapter 11 bankruptcy proceeding, except that it takes place outside the jurisdiction of a bankruptcy court.
On April 25, the 51-year-old Cafritz disclosed that he was running short of cash and needed more time to pay his debts. The announcement stunned and dispirited many players in an already deteriorating local real estate market.
Washington real estate executives said they perceived Cafritz as smarter and financially stronger than most of their peers, and his family name had been synonymous locally with real estate riches since before World War II.
Real estate executives said they could discern no particular strategy behind Cafritz's rapid expansion during the late 1980s. In an interview at his downtown office yesterday, Cafritz offered few insights about his business strategy and showed little emotion as he answered questions about his current predicament.
"Any developer in my position today wishes he was on the sidelines a year ago and today is envious of the developers who did nothing," he said.
Cafritz's report to his creditors offers one of the most detailed views yet of the widespread problems facing Washington real estate developers -- as well as the banks, savings and loans, pension funds and life insurance companies that bankrolled their ambitions.
Cafritz's lenders include some of the most troubled local financial institutions.
He borrowed $18.8 million from National Bank of Washington, which was recently taken over by federal regulators, and $71.5 million from Perpetual Savings Bank, the Washington area's biggest savings and loan. Perpetual reported losses of $63 million during the first six months of this year and has been operating under regulators' close supervision.
According to Cafritz's report, his biggest creditor as of March 31 was Skopbank, a Finnish institution, which lent Cafritz $87.8 million related to his plan to develop the Freestate Raceway site in Prince George's County. Second was Sumitomo Bank Ltd., a Japanese bank, which lent Cafritz $84.3 million. Most of that was a mortgage on the Holiday Inn Crowne Plaza in Crystal City.
Perpetual ranked third, followed by New York-based Citicorp, with loans of $56.9 million, a pension fund for Texas teachers with loans of $55.3 million, and Washington-based American Security Bank with loans of $55.3 million. Among the other creditors were Fairfax County, with loans of $19.9 million, and the U.S. Department of Housing and Urban Development, with $3.1 million.
In recent months, Cafritz has been selling some of his holdings, even as he seeks an overall solution to his problems. For example, Cafritz said the sale of an interest in a Detroit shopping center enabled him to virtually eliminate his $56.9 million debt to Citicorp.
If Cafritz or his lenders tried to sell his properties immediately, many of them would be worth less than their mortgages, the report stated.
The Georgetown Inn hotel has secured debt of $11.4 million but would sell for only $7.1 million this year, according to the proposal, which was prepared for Cafritz by the Arthur Andersen & Co. accounting firm. The Holiday Inn Crowne Plaza, mortgaged for $55.1 million, would sell for $43.3 million, the report said.
Participants in the Cafritz negotiations said it is difficult to place precise present or future values on the real estate, particularly given the uncertainty that now plagues the real estate market. Cafritz said that "values would be severely depressed" in a forced sale and that he does not expect to be forced to sell his properties immediately.
One banker involved in the negotiations said he was surprised by the scope of Cafritz's borrowings. The banker said his institution had been under the impression that Cafritz was dealing with fewer lenders.
Sources said it was unclear whether lenders with divergent interests would be able to negotiate in concert. Some of the companies that provided goods or services for Cafritz's business -- relatively small creditors -- have settled accounts for 50 cents on the dollar, sources said.
Cafritz's two largest lenders have been dealing with him independent of the overall plan proposed in June.
In his confidential report to the lenders, Cafritz said he was working with Skopbank on a separate restructuring. Sumitomo, the Japanese bank, has not taken an active role on the creditors committee, and has not yet responded to Cafritz's proposal, according to Michael Barrett, a lawyer for the bank. Cafritz said he has reached a "tentative understanding" with Perpetual.
In his proposal, Cafritz asked that he be allowed to use $18 million of the income from his ventures to pay salaries and run his real estate business through the end of 1993. He also sought to shelter some of his wealth from the creditors, including:
His interest in a trust created by his father, the late Morris Cafritz, estimated to be worth $7 million. In April, the same month Cafritz disclosed his financial problems, Cafritz transferred this interest to his wife, Peggy Cooper Cafritz. The report said the transfer satisfied a prenuptial agreement.
Any funds he might receive as a result of a lawsuit filed by Cafritz and his brother Carter in June 1989 challenging the will of his mother, Gwendolyn Cafritz. Gwendolyn Cafritz died in November 1988 and left almost her entire estate -- estimated at one point to be worth more than $140 million -- to a philanthropic foundation created by her husband in the 1940s.
His principal residence on Chain Bridge Road in Northwest Washington, which was placed in a trust in 1986 for his wife and son.
10 LARGEST LENDERS*
Skopbank (Finland)................... $87.8 million
Sumitomo Bank (Japan)................ $84.3 million
Perpetual Financial.................. $71.5 million
Citicorp............................. $56.9 million
Texas Teachers Retirement............ $55.3 million
American Security Bank............... $55.3 million
Home Savings of Kansas City.......... $50.0 million
First Chicago........................ $42.2 million
Crestar Financial.................... $33.3 million
Signet Banking....................... $29.7 million
OTHER SELECTED CREDITORS IN THE WASHINGTON AREA
Bank of Baltimore................... $8.9 million
Equitable Bank...................... $13.8 million
Fairfax County...................... $19.9 million
First American Bankshares........... $18.3 million
First National Bank of Md. ......... $22.4 million
National Bank of Washington......... $18.8 million
Sovran Financial.................... $15.5 million
*As of March 31 SOURCE: A confidential Cafritz report to creditors