Five companies owned by the landlord at the center of WUWM’s series “How to Evict Your Landlord” have filed for bankruptcy.
Highgrove Holdings Management LLC, along with four other LLCs in David Tomblin’s network, filed for Chapter 11 bankruptcy in late July
Earlier this year, David Tomblin owned and managed over 200 rental properties in Milwaukee. Some of his tenants have accused him of failing to address hazardous living conditions at his properties.
U.S. Bank successfully sought a receiver to take over management of 86 properties, as Tomblin owed over $8 million after not paying towards a loan for over a year. The City of Milwaukee is seeking to place the remaining properties into receivership as well. The city got involved after Tomblin tenants organized to document code violations with the help of the nonprofit advocacy organization Common Ground.
When properties are placed with a receiver, the owner loses the ability to manage the property and cannot collect rent.
According to court documents in the bankruptcy case, Highgrove and the four related LLCs noted having less than $10 million in assets, and between $10-50 million in liabilities. The LLCs collectively owe the City of Milwaukee about $350,000.
In a declaration submitted to the court, Tomblin blamed post-COVID inflation, labor and construction costs, interest rates, “unresolved accounting issues” and lawsuits from creditors to explain financial issues starting around 2022. Tomblin also blamed the City of Milwaukee for its lawsuit, along with Common Ground.
“The actions of the City and Common Ground received negative news coverage which caused rental collections to drop to approximately 85% of expected levels,” Tomblin said in a court declaration.
Tomblin did not respond to request for comment by deadline.
What is Chapter 11 bankruptcy?
Chapter 11 bankruptcy allows a company to reorganize its business, and present a plan to creditors to pay back debts over time. This is different from Chapter 7 bankruptcy, where a company is seeking to liquidate and stop existing.
Val Sibilkov, associate professor of finance at UW-Milwaukee’s Lubar College of Business, says that a company or person who files for Chapter 11 bankruptcy acknowledges financial difficulty but still plans to continue operating.
“The company says ‘We don’t have sufficient capital or cash flow to pay on these liabilities, but if you allow us to continue, we hope we will be able to pay more than you would get in liquidation,’” Sibilkov says.
Sibilkov notes that when a receiver is appointed to manage properties, it indicates some level of mismanagement. Similarly, Chapter 11 bankruptcy is an opportunity to improve management of properties, and not necessarily the end of the road for a business.
“Bankruptcy is nothing dramatic. It’s a tool where you identify assets and put those assets to best use,” Sibilkov says.
