Like millions of property owners, Orange County Choppers has felt the sting of foreclosure and could be moving to smaller quarters. It’s a “business decision” says the senior Paul Teutel, speaking on the downsizing episode of the American Chopper TV series.
You could see this coming for much of the past year.
In November 2010, the local Times Herald-Record newspaper reported that the company had failed to make mortgage payments of more than $100,000 due by July 1st, 2010.
“The Choppers,” said the paper, “stopped making mortgage payments in order to put pressure on the lender to modify the terms of the loans, according to Choppers’ lawyer Richard Mahon. Mahon said that when the headquarters was built in 2007, it was valued at about $12 million. Because of the economic downturn, the building is now worth between $7 million and $8 million, he estimated.” (See: Orange County Choppers’ HQ faces foreclosure, Nov. 18, 2010)
According to public records, the property consists of a two-story building with 98,172 square feet that was erected on 3.3 acres of land in 2008. For 2011 the property is valued at $11,248,600
If the idea was to force the lender to accept a lower mortgage rate or give up principal because the value of the property declined then foreclosure of the new building was inevitable. Here’s why:
First, financing on the property was held by GE Commercial Finance Business Property Corp. according to the Times Herald-Record. The company is enormous with 2008 revenues of $26.7 billion. The $12.5 million provided to Orange County Choppers means the motorcycle builder has no leverage because it can’t materially impact the lender by withholding payments. Alternatively, by foreclosing GE can force OCC out of the building. This is no contest.
Second, GE is a lender, not a partner or co-owner. Think about it this way: If the value of the building increased would Orange County Choppers then voluntarily agree to pay additional money to GE?
“Could anyone who bought an Orange County Chopper and is still paying for it with a loan go back and ask the motorcycle building company for a discount, or at the very least help with the monthly payments? Would there be some recourse for the different dealerships around the country reselling Orange County Choppers over their costs compared to a difference in selling prices during these tough economic times?”
Fourth, how much business has been lost to a new custom bike builder that recently set up shop nearby: Paul Jr. Designs? Is the market for theme bikes big enough to support two local companies — or to support two local companies well? Could the companies prosper without TV exposure?
Paul Senior and Paul Junior have now settled their lawsuit though personal relations between father and son are clearly strained. The good news, at least, is that all OCC employees will keep their jobs even if the physical plant is downsized — that’s enormously important at a time when unemployment is high and rightsizing and outsourcing are too common. Meanwhile, PJD is growing and that’s a great success story to watch.