The Bon Morro - Case Summary

Business Description

The Debtors hold a ground lease interest in The Bon, a mixed-use real estate project located at 1260 Boylston Street in Boston, Massachusetts. The Project consists of 451 residential apartment units (studio, one-bedroom, and two-bedroom) and seven commercial units.

• The Project was developed with the goal of increasing the availability of affordable housing in Boston by creating efficient multifamily units for young professionals and students, thereby freeing up larger, family-friendly housing for local families.

The Debtors' corporate structure is organized as follows:

• DMP Scape, LLC, a Massachusetts limited liability company, holds an 83.195% membership interest in Holdings.
• Holdings, LLC, a Delaware limited liability company, holds a 100% membership interest in Leasehold Owner.
• Leasehold Owner, LLC, a Delaware limited liability company, is the direct holder of the ground lease interest in the Project.

According to the Debtors, there is no equity value in the Project as of the Petition Date due to the restrictive terms of the underlying Ground Lease. However, the Debtors estimate that if the Ground Lease were amended to reflect commercially reasonable, market-standard terms acceptable to conventional lenders, the Leasehold Owner's interest in the Project would have a value of at least $190 million.

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Corporate History

Construction of the Project was completed in 2022. The current majority owner of the Project initially held a passive minority stake and was not involved in the original negotiation of the Ground Lease, project planning, or the initial diligence process.

• In early 2025, the individual became the majority owner with the objective of rescuing, stabilizing, and deleveraging the Project, which was at risk due to its debt structure.
• Given the owner's prior passive role, he had no existing relationship with the Landlord and no reason to believe the Landlord would impede future refinancing efforts.

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Operations Overview

Since the completion of construction, the Project has generated significant cash flow from its residential and commercial tenants, which has been more than sufficient to cover operating expenses, excluding debt service. For fiscal year 2024, the Project generated net operating income of approximately $9.7 million before accounting for payments due under the Ground Lease.

Residential Operations

• Approximately 95% of the Project's 451 residential apartment units are currently leased, generating aggregate annual rents of approximately $17 million.
• Of the leased units, 15% are designated as subsidized affordable housing, with the remainder leased at market rates.

Commercial Operations

• Five of the seven commercial units are leased, generating approximately $4.1 million in annual rent.
• Tenants include Chase Bank, Carbon Health, Dave's Hot Chicken, and The Halal Guys.
• A fifth tenant, The Theatre Offensive, has its rent capped at $1,000 annually.

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Prepetition Obligations

As of the Petition Date, the Debtors' capital structure includes approximately $167.5 million in funded debt obligations, in addition to significant obligations under a long-term ground lease.

Prepetition Mortgage Loan

• Approximately $162.5 million in principal is outstanding under a mortgage loan agreement agented by 1260 Boylston Street Lender, LLC. The loan is secured by a leasehold mortgage on the Project.
  • The loan originated as a $165 million construction facility in October 2020 and was restructured into its current form on November 7, 2023.
  • The Prepetition Mortgage Loan matured on July 17, 2025.

Prepetition Subordinated Loan

• An additional $5 million remains outstanding under a subordinated loan provided by GCP Asset Backed Income (UK) Limited.
  • Pursuant to a January 17, 2025 modification agreement, Debtor DMP Scape replaced a non-Debtor affiliate as the borrower. The original obligations were replaced with two $5 million payments; the first was paid in full, while the second remains outstanding.
  • The Prepetition Subordinated Loan matured on July 15, 2025.

Ground Lease

• The Debtors' obligations include a 99-year ground lease with Boylston Kenmore 1260, LLC (the "Landlord"), under which Leasehold Owner leases the land on which the Project was built.
  • The lease, dated July 15, 2018, expires on October 31, 2119.
  • The Leasehold Owner pays the Landlord $3 million in fixed annual rent, subject to certain escalation provisions.

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Events Leading to Bankruptcy

The Debtors' bankruptcy filing was precipitated by their inability to refinance prepetition construction loans ahead of their July 2025 maturity dates, a failure the Debtors attribute directly to commercially unreasonable terms in the Project's Ground Lease and the subsequent refusal of the Landlord to consent to market-standard amendments.

Failed Refinancing Efforts

• Although operationally successful and nearly fully leased, the Project remained encumbered by its original construction financing. In 2024, the Debtors engaged premier debt brokerage Walker & Dunlop to secure long-term, low-interest financing typical for stabilized real estate assets.
• The refinancing process was unsuccessful, as prospective lenders, including Freddie Mac, life insurance companies, and pension funds, were deterred by a number of non-standard commercial terms in the Ground Lease.
  • The existing Prepetition Mortgage Lenders had obtained temporary relief from these terms via a one-time "Ground Lessor Estoppel Certificate and Amendment," but this protection expires upon repayment of their loan and does not extend to new lenders.
  • The financing market was further constrained by a lease provision requiring any lender to be an "Institutional Lender," defined as having approximately $306 million in gross assets, limiting the Debtors to more conservative lenders with stricter borrowing requirements.

Dispute with Landlord

• The Debtors determined that refinancing was impossible without amending the Ground Lease. In March and April 2025, the Debtors approached the Landlord to negotiate amendments, citing a provision in the lease (Article 6.6) that requires the Landlord to "cooperate" with such requests.
• Despite this requirement, the Landlord allegedly refused to approve the requested amendments and engaged in what the Debtors describe as "bad-faith extortionary tactics." The Landlord's prerequisites for negotiation reportedly included a $1.5 million upfront payment and an increased security deposit equal to three years' rent.

Maturity Defaults and Chapter 11 Filing

• The Landlord's refusal to cooperate caused the Debtors to miss opportunities to refinance or sell the Project during the spring of 2025. Consequently, DMP Scape defaulted on the Prepetition Subordinated Loan upon its maturity on July 15, 2025, and Leasehold Owner defaulted on the Prepetition Mortgage Loan two days later.
• Following months of unsuccessful out-of-court negotiations with the lenders and the Landlord, the Prepetition Subordinated Lender noticed a UCC secured party sale of its collateral—DMP Scape's membership interests in Holdings—scheduled for November 6, 2025.
• Faced with the pending enforcement action, the Debtors filed for Chapter 11 protection. Concurrently, the Debtors initiated an adversary proceeding against the Landlord, alleging bad-faith conduct that forced the financially healthy Project into bankruptcy.