Bankrupt PAA reorganization plan wins approval
A year ago, the once prestigious 110-year-old Pittsburgh Athletic Association was facing extinction. Bowed by millions worth of unpaid bills, proud members reluctantly abandoned their iconic clubhouse in Oakland after the water and lights were cut off, and padlocked the doors.
On Wednesday, you could almost see the lights flickering back on.
After a two-hour hearing in Pittsburgh, U.S. Bankruptcy Court Judge Jeffery A. Deller approved the group’s reorganization plan, clearing the way for the club to emerge from bankruptcy exactly one year after filing for Chapter 11 protection.
If all goes as planned, more than 100 individual creditors owed roughly $9 million should start receiving their payments within the next 60 days, the club’s bankruptcy attorney, Jordan Blask of Tucker Arensberg, said Wednesday.
The reorganization plan is unusual in that it calls for repaying all creditors in full. Typically, unsecured creditors — such as food vendors and contractors that provide goods and services without collateral — end up accepting a smaller percentage of what they are owed, sometimes only pennies on the dollar.
“Getting employees paid in full and getting creditors paid in full absolutely was part of our initial plan,” PAA president James Sheehan said after the hearing. “It’s a success.”
But for club members, it will be some time before they can expect to have a home again.
The cornerstone of the reorganization is the sale of the PAA’s 107-year-old, six-story building on Fifth Avenue to Shadyside-based developer Walnut Capital for some $12.6 million, which is expected to be completed shortly.
The firm plans to spruce up the shabby structure and redevelop it into restaurants and office space, while setting aside refurbished space for PAA activities.
The work is expected to take 18 to 24 months, putting occupancy somewhere around the beginning to middle of 2020.
The stately building, which is
listed on the National Register of Historic Places, sits on a prime piece of real estate in the heart of Oakland across from the University of Pittsburgh’s Cathedral of Learning.
Walnut Capital president Todd Reidbord told the judge Wednesday that there was tremendous demand for office space in Oakland, driven by the university and medical centers.
“We think [the redeveloped clubhouse] will command some of the highest rents in the city,” he said.
Walnut plans to clean and restore the exterior of the structure and renovate the lobby, which will be open to the public for the first time, Mr.Reidbord said.
“We’ll bring it back to its glory,” he said.
Plans also include an outdoor walkway connecting the building to a 10story luxury hotel being built next door, which Mr. Reidbord said was scheduled to open at Christmas time.
For PAA members, Walnut plans to convert two basement levels into a fitness center, including a two-lane lap pool, plus a grill room on the first level and squash courts on the roof.
Members and the public also will be able to lease rooms on the first floor for special events, including parties and weddings.
The fitness center won’t have windows, but part of the area will be two-stories tall, making it a “light and airy space,” Mr. Reidbord said.
In recent months, there has been concern among some PAA members about whether they ultimately would end up with the fitness and other facilities laid out in the plan.
That’s because those amenities hinge on how much money is left in a reserve fund that has been set aside to pay potential taxes on the sale of the clubhouse. If taxes were to eat up too much of the fund, then Walnut would not be obligated to provide the club with any space in the building.
Mr. Reidbord told the court he was “100 percent confident” there would be sufficient money to enable Walnutto “deliver what we are presenting.”
That outlook was buoyed by an Internal Revenue Service ruling revealed earlier in the the week that reinstated the tax-exempt status of the PAA entity that owns the building.
Because of the favorable ruling, Mr. Blask said he expects the club will owe little, if any, taxes on the transaction.
The final determination on taxes won’t be made until after the PAA files its annual tax return in the fall of 2019, he said.
There were no objections to the reorganization plan raised at Wednesday’s hearing.
On Tuesday, a small group of PAA members withdrew their objection after a developer they were pushing to replace Walnut Capital — Downtown-based McKnight Realty Partners — withdrew its offer to buy the building.
The PAA dates back to 1908, when it was formed as a social and athletic club by a group of the city’s business and cultural elite.
The organization fell on hard times in recent years amid declining membership, dwindling revenues and the costs of maintaining an aging facility.
Currently, there are about 200 members, down from around 750 a few years ago.
“Accolades to the board, membership, professionals and all constituents involved for working in a respectful and congenial way,” Mr. Blask said Wednesday. The effort will “return the PAA to its grandeur of 100 years ago for many more families to enjoy.”