After months of negotiating with the bank to no avail, a local real estate investment company filed for bankruptcy on July 10, to avoid foreclosure on two downtown Gilroy properties.
Gary Walton, sole owner of Custom One, Inc., said his decision to file for bankruptcy came after Santa Barbara Bank and Trust said two of his properties – 7430 Monterey Street, home to 9Lives Club, and a custom-built office building at 60 Fourth Street – were to be auctioned by the bank.
Walton bought the properties in 2007 and early 2008, before the real estate crash of the Great Recession, and has since watched their values plummet by 50 percent, causing his loans to be worth more than the properties themselves.
By filing for bankruptcy, Walton prevented the properties from going into foreclosure, at least for now.
“Millions of people have been affected by the market’s meltdown, so what I’m dealing with is not unusual,” Walton said. “I’m hopeful this will all work out for the best.”
The bankruptcy process should last about six months, in which Walton and the bank will come up with a court-approved agreement for payment of debts.
“Basically this is an attempt to work with the court to come up with a reorganization,” he said. “We’ll work with the bank and see if we can retain the properties.”
Walton said Santa Barbara Bank and Trust refused to negotiate with him in the months leading to this decision, leaving him with “not many other options.”
“If the values of the properties hadn’t dropped by 50 percent, I’d have some more options available,” he said.
Meanwhile, the properties in downtown will continue to be leased and continue to be owned by Custom One, until the courts come to a decision, Walton said.
A long-time Gilroy resident and downtown revitalization enthusiast, Walton currently owns 10 downtown properties, including the interim library building on Monterey Street.
Walton’s lawyer is Merrill Zimmershead, a bankruptcy specialist based in Gilroy.