In May, the City of San Luis Obispo condemned 1150 Laurel Lane for multiple code violations, forcing tenants to vacate after losing an appeal to the city's Construction Board of Appeals. Now, owner Pat Smith of Laurel Creek LP has filed for Chapter 11 bankruptcy.
Since 2018, 1150 Laurel Lane has faced multiple hurdles — the COVID-19 pandemic, water damage, stalled construction, tenants being vacated and the building being condemned. Now, Smith has filed for bankruptcy after issues with the company's creditor, Columbia Pacific Advisors, that reportedly halted construction back in 2023.
“They weren't able to get additional draws on their construction loan so they couldn't move forward to continue to improve the property and pay their vendors," Pioneer Funding LLC Portfolio Manager Adam Stein-Sapir said. “I do believe that the building will one day kind of achieve its highest and best use like as a mixed-use building.”
Pioneer Funding LLC is an investment firm that buys other bankruptcy claims from vendors or subcontractors for cash for a partial amount of the debt owed. They then become the group that is paid back by the debtor for a profit.
According to Stein-Sapir, the Chapter 11 filing allows for Smith’s business to restructure debt and keep the business running.
“They believe that the debtor can be rehabilitated and emerge from bankruptcy," he said.
For Smith, he calls it "consensual bankruptcy," a way for them and the creditor Columbia Pacific to carry on and complete construction, which he says would take 4-5 months, costing $10 million.
"We both agreed that they will find the money to complete the project and we will complete the project in posthaste and then reach for a conclusion of a either refinance or a sale of the asset," Smith explained the reasoning behind the filing.
The filing includes an evaluation of the property at almost $50.1 million. In May, tenants like Bang the Drum Brewery, Office Hours and SLO City Church were forced to vacate. Smith says they were in communication with those tenants; however, on many occasions, tenants KSBY spoke with said they were unaware of why progress had stopped on construction.
Smith explained that the resumed funding during bankruptcy will help pay off some subcontractors but not all. Smith said that they received a loan from Columbia Pacific in 2022 for $44 million; however, due to multiple repairs made over the next year, the money stopped, which halted construction in April 2023.
For Smith, he said his goal would be to get the existing tenants back following the work that needs to be done.
In a statement, the city’s Community Development Director, Timmi Tway, said that “Regardless of the financial situation of the owner of a property like this, the City’s priority continues to be ensuring safety at the site and encouraging the owner to bring the building and the site into compliance with required codes.”
