2025-01-14 Declaration of Edward T. Gavin (Doc 307, received 2025-01-23)Case 24-11647-MFW Doc 307 Filed 01/14/25 Page 1 of 11
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re
SilverRock Development Company, LLC, et al.,
Debtors.'
Chapter 11
Case No. 24-11647
(Jointly Administered)
Re: Docket No. 246
DECLARATION OF EDWARD T. GAVIN, CTP, NCPM OF GAVIN/SOLMONESE
LLC, ADVISOR TO RICHARDS, LAYTON & FINGER, P.A. ON BEHALF OF THE
SOLE MANAGER OF THE DEBTORS, IN SUPPORT OF MOTION OF DEBTORS
PURSUANT TO SECTIONS 105, 361, 362,363, 364, AND 507 OF THE
BANKRUPTCY CODE, BANKRUPTCY RULE 4001, AND LOCAL RULE 4001-2,
FOR AN ORDER (I) AUTHORIZING DEBTORS TO OBTAIN POSTPETITION
FINANCING; (II) GRANTING DIP LENDER PRIMING LIENS AND SUPER -
PRIORITY CLAIMS; AND (III) GRANTING RELATED RELIEF
I, Edward T. Gavin, CTP, NCPM declare as follows under penalty of perjury:
Background
1. I am a Managing Director of the firm Gavin/Solmonese LLC ("Gavin/Solmonese"),
with offices at 1007 N. Orange Street, Suite 461, Wilmington, DE 19801 and other locations.
Gavin/Solmonese has been retained by Richards, Layton & Finger, P.A. ("RL&F") to perform
services for the Sole Manager of the above -captioned debtors and debtors in possession
(collectively, the "Debtors").
1The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification
number, as applicable, are: SilverRock Development Company, LLC (5730), RGC PA 789, LLC (5996), SilverRock
Lifestyle Residences, LLC (0721), SilverRock Lodging, LLC, (4493), SilverRock Luxury Residences, LLC (6598)
and SilverRock Phase 1, LLC (2247). The location of the Debtors' principal place of business and the Debtors' mailing
address is 343 Fourth Avenue, San Diego, CA 92101.
Case 24-11647-MFW Doc 307 Filed 01/14/25 Page 2 of 11
2. I submit this declaration (the "Declaration") in support of the Motion of Debtors
Pursuant to Sections 105, 361, 362, 363, 364, and 507 of the Bankruptcy Code, Bankruptcy Rule
4001, and Local Rule 4001-2, for an Order (I) Authorizing Debtors to Obtain Postpetition
Financing; (II) Granting DIP Lender Priming Liens and Super -Priority Claims; and (III) Granting
Related Relief [Docket No. 246] (the "DIP Motion").2
3. I am familiar with the contents of the DIP Motion and, except as otherwise
indicated, all statements in this Declaration are based on (i) my personal knowledge, (ii)
information supplied to me by members of Gavin/Solmonese working under my direction and
supervision, the Sole Manager, his counsel, RL&F, the Debtors' management or the Debtors'
professionals that I believe in good faith to be reliable, (iii) my review of relevant documents, and
(iv) my opinion based upon my professional experience.
4. I am over the age of eighteen and authorized to submit this Declaration on behalf
of the Sole Manager and the Debtors. If called upon to testify, I could and would testify
competently to the facts set forth in this Declaration.
Qualifications and Background
5. I am a Managing Director of Gavin/Solmonese, a nationally recognized
restructuring and turnaround management firm whose professionals have extensive experience
providing strategic and financial advisory services to companies and their creditors and investors,
including restructurings, mergers and acquisitions, capital -raising and valuations.
2 Capitalized terms that are used but not otherwise defined herein shall have the meaning ascribed to such terms in the
Motion.
2
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6. I have over 25 years of experience working with distressed companies and their
stakeholders in diverse industries, including construction, retail, transportation, regulated and non -
regulated manufacturing, pharmaceutical and healthcare, professional services, and metal -
forming. I have extensive experience in valuations, finance, and restructuring (both in and out of
court) and regularly provide advisory services in the context of DIP financing and 363 sale
processes, among other areas.
7. I hold a Bachelor of Science in Management and Information Systems from the
University of Phoenix, a Master of Legal Studies with a concentration in dispute resolution from
Pepperdine University Caruso School of Law, and a Master of Dispute Resolution from the Straus
Institute for Dispute Resolution at Pepperdine University Caruso School of Law.
Retention of Gavin/Solmonese
8. RL&F has engaged Gavin/Solmonese to provide services for the Sole Manager of
the Debtors.
The Poppy Bank Loan and Collateral
9. It is my understanding that, prior to the Petition Date, Debtor SilverRock
Development Company ("SDC") and Poppy Bank entered into a loan agreement, pursuant to
which Poppy Bank agreed to loan $40,000,000.00 to SDC at a rate of 5% per annum, maturing
November 1, 2024. I understand that Poppy Bank sent a demand letter (the "Poppy Bank Demand
Letter") to the Debtors on or around December 18, 2024, stating, among other things, that the
amount of the Poppy Bank Loan as of December 17, 2024, including interest at the default rate but
not including attorneys' fees, was $34,756,746.81 (the "Poppy Bank Loan").
10. I also understand that the collateral (the "Poppy Bank Collateral") securing the
Poppy Bank Loan consists of the following parcels at the Project (each identified by their common
3
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Project name): the Montage Hotel Site, the Pendry Hotel Site, the Golf Clubhouse Site, the
Conferences and Shared Services Site, 16 Montage Residences,3 the Pendry Residences Phase I,
and the Pendry Residences Phase II.
11. I understand that approximately $20,000,000 in mechanics' liens have been
asserted against the parcels comprising the Poppy Bank Collateral. I also understand there are
other mechanics' liens asserted against the parcels comprising the Poppy Bank Collateral, as well;
however, it is my understanding that such liens were not properly perfected under applicable law.
The Appraisals
12. Prior to the Petition Date, appraisals were prepared by HVS Global Hospitality
Services ("HVS") and CBRE, Inc. ("CBRE") with respect to various parcels at the Project. Such
parcels (each identified by their common Project name) include the following: the Montage Hotel
Site, the Pendry Hotel Site, the Golf Clubhouse Site, the Conferences and Shared Services Site,
Planning Area 7, 8, 9, the Montage Residences, the Pendry Residences Phase I, and the Pendry
Residences Phase II.
13. I am familiar with HVS and CBRE and believe that HVS and CBRE are premier
real estate services firms. I believe that both HVS and CBRE are qualified, credible and reliable
valuation and appraisal experts.
14. It is my understanding that the appraisals were not conducted for purposes of
litigation or in connection with a hearing or proceeding in the Bankruptcy Court.
It is my understanding that the Poppy Bank Collateral consists of 16 of the 29 Montage Residences. Accordingly, I
have ascribed 55.172414% of the total value of the Montage Residences in calculating the Equity Cushion (as defined
herein).
4
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15. As set forth on page 1 of each of the HVS Appraisals, HVS conducted appraisals
(the "HVS Appraisals"), dated May 28, 2024, at the request of Oppenheimer and Company, Inc.
("Oppenheimer"). I understand from the Declaration of Douglas Wilson, the Debtors' Chief
Restructuring Officer, that the HVS Appraisals were requested by Oppenheimer in connection with
a contemplated public bond offering. See Supplemental Declaration of Douglas Wilson, Chief
Restructuring Officer of the Debtors, in Support of Motion of Debtors Pursuant to Sections 105,
361, 362, 363, 364, and 507 of the Bankruptcy Code, Bankruptcy Rule 4001, and Local Rule 4001-
2, for an Order (I) Authorizing Debtors to Obtain Postpetition Financing; (II) Granting DIP
Lender Priming Liens and Super -Priority Claims; and (III) Granting Related Relief [Docket No.
301]at III 10.
16. In the HVS Appraisals (as -is values), HVS appraised certain parcels at the Project
in the aggregate value of $235,400,000 prior to the Petition Date, broken out into the following
properties:
Property
Appraised Wlue
Cu ulative Total
Montage Hotel Site
$35,300,000
$35,300,000
Pendry Hotel Site
$24,000,000
$59,300,000
Montage Residences
$98,100,000
$157,400,000
Pendry Residences Phase I
$23,500,000
$180,900,000
Pendry Residences Phase II
$54,500,000
$235,400,000
17. The HVS Appraisals did not include Planning Areas 7, 8, 9. The HVS Appraisals
include the Golf Clubhouse Site within the Montage Hotel Site valuation, and allocate the cost
amount for the Conferences and Shared Services Site within both the Montage Hotel Site and
Pendry Hotel Site valuation.
5
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18. As set forth on page 1 of the CBRE Appraisal, CBRE conducted an appraisal (the
"CBRE Appraisal"), dated June 3, 2024, at the request of FirstPathway Partners LLC, one of the
Debtors' secured creditors.
19. In the CBRE Appraisal (as -is values), CBRE appraised certain parcels at the Project
in the aggregate value of $233,200,000 prior to the Petition Date, broken out into the following
properties:
Property
Appraised Value
Cumulative Total
Montage Hotel Site
$87,200,000
$87,200,000
Pendry Hotel Site
$38,600,000
$125,800,000
Golf Clubhouse Site
$16,200,000
$142,000,000
Conferences and Shared
Services Site
$29,700,000
$171,700,000
Planning Areas 7, 8, 9
$61,500,000
$233,200,000
20. The CBRE Appraisal did not include the following properties for valuation
purposes: (i) the Montage Residences, (ii) the Pendry Residences Phase I, and (iii) the Pendry
Residences Phase II.
21. I have reviewed and analyzed the HVS Appraisals and the CBRE Appraisal in
connection with my analysis of the value of the Poppy Bank Collateral relative to the amount of
the Poppy Bank Loan and the amount of any equity cushion (the "Equity Cushion"), and the
following represents my conclusions.
Stress -Testing the Appraisals and Equity Cushion Analysis
22. For purposes of my analysis of the Equity Cushion, I have assumed, among other
things, that Poppy Bank has a first position, senior deed of trust on the Poppy Bank Collateral and
there exists approximately $20,000,000 in mechanics' liens on the Poppy Bank Collateral.
6
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23. In connection with my analysis, I have reviewed both the HVS Appraisals and the
CBRE Appraisal, public market data related to real estate values in the La Quinta, California area,
publicly available information relating to the value considerations in the HVS Appraisals and the
CBRE Appraisal, and documents related to the DIP Motion and the Poppy Bank Loan, including
the Poppy Bank Demand Letter. In addition, my team and I surveyed various distressed real estate
professionals and investors regarding relevant real estate valuation and appraisal topics.
24. In reviewing the HVS Appraisals and the CBRE Appraisal, I analyzed and
considered the methodologies applied by HVS and CBRE in conducting the appraisals. In doing
so, I divided the appraisals into discrete inputs and reviewed and tested each input relevant to my
analysis.
25. For purposes of my analysis, $22.00 per square foot was used as a conservative
price per square foot estimate based on the price per square foot values attributed by HVS
($23.00/square foot) and CBRE ($22.73/square foot), each as discussed below. In testing the
$22.00 per square foot price, however, my team and I researched publicly available market data
regarding square foot prices of residential real estate in development in the La Quinta, California
area. The results of such research show that the prevailing current average prices per square foot
in the zip codes surrounding the Debtors' site in La Quinta, California area are currently between
$43 and $54 per square foot. Accordingly, using the $22.00 per square foot price in my testing is
roughly half of the current market price per square foot in La Quinta, California per research of
publicly available information, and less than the values relied upon by HVS and CBRE on a per
square foot basis in their respective appraisals.
7
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26. In reviewing the HVS Appraisals, I formed the view that HVS had concluded that
$23 per square foot was appropriate for appraisal purposes. Based upon the HVS Appraisals, it
appears that HVS does not include in their values the hard and soft sunk costs or an estimate of
the value retained by such costs, as that measurement is inapplicable to the type of valuation they
performed. Accordingly, for purposes of my analysis, I tested the HVS Appraisals and their inputs
by multiplying the total square footage of the parcels appraised by HVS by $22.00 per square foot
— in essence, replicating HVS's appraisal of the land only, without providing value for the
businesses or residences that might one day sit atop that land.
27. In reviewing the CBRE Appraisal, I formed the view that CBRE had concluded that
$23.73 per square foot was appropriate for appraisal purposes. Based upon the CBRE Appraisal,
it appears that CBRE included in the CBRE Appraisal an evaluation of hard and soft sunk costs
and attributed 90% value retention to such hard and soft sunk costs. Accordingly, for purposes of
my analysis, I tested the CBRE Appraisal and its inputs by (i) multiplying the total square footage
of the parcels appraised by CBRE by $22.00 per square foot, (ii) multiplying the total hard and
soft sunk costs by the percentage of value retained by such costs, and (iii) adding (i) and (ii) to
achieve the total appraised value.
28. In connection with my review of the CBRE Appraisal, my team and I surveyed
distressed real estate professionals and investors to determine whether the 90% value retention of
hard and soft costs used by CBRE was appropriate. The results of the survey indicated that 17%-
35% value retention of hard and soft sunk costs is more appropriate for purposes of a conservative
real estate appraisal.
29. Accordingly, for purposes of my analysis, I created two stress -tests of the appraisal
values that combine the methodologies used by HVS and CBRE. Such tests, referred to as "Stress
8
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1" (35% value retention of hard and soft sunk costs considered) and "Stress 2" (17% value
retention of hard and soft sunk costs considered), consider the square footage of each parcel
multiplied by $22 per square foot plus the applicable value retention of hard and soft sunk costs
only with respect to parcels appraised by CBRE.
30. The results of Stress 1 and Stress 2, as described further below, were then used to
determine whether and to what extent an Equity Cushion exists. For purposes of my Equity
Cushion analysis, I considered the following amounts: (i) the current Poppy Bank Loan amount of
$34,756,746.81 per the Poppy Bank Demand Letter, (ii) interest on the Poppy Bank Loan
calculated at the default rate through August 1, 2025 as $2,018,456.76, (iii) proper mechanics'
liens on the Poppy Collateral as $20,000,000, and (iv) the proposed DIP loan offered by the City
of La Quinta (the "DIP Loan") to be in the principal amount of $11,00,000.00 plus interest through
December 31, 2025 and fees for a total of $12,100,000.00 if approved. Exhibit A attached hereto
reflects the inputs and calculations underlying my opinions.
31. The results of the Stress 1 calculation (35% value retention of hard and soft sunk
costs considered), where applicable, demonstrate an estimated aggregate appraised value of
approximately $110,036,423.58 for the Poppy Bank Collateral.
32. Applying the Stress 1 appraisal amount to calculate the Equity Cushion, relying on
the amounts identified in paragraph 30, Stress 1 results in a $41,161,221.01 Equity Cushion which,
expressed as a percentage, equals a 59.76% Equity Cushion.
33. Accordingly, as a result of my analysis in Stress 1, the Equity Cushion would be
59.76%.
9
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34. If priming on the DIP Loan is limited to $7,000,000.00, the Equity Cushion under
Stress 1 results in a $46,261,221.01 Equity Cushion which, expressed as a percentage, equals
72.54%.
35. The results of the Stress 2 calculation (17% value retention of hard and soft sunk
costs considered), where applicable, demonstrate an estimated aggregate appraised value of
approximately $84,662,896.92 for the Poppy Bank Collateral.
36. Applying the Stress 2 appraisal amount to calculate the Equity Cushion, relying on
the amounts identified in paragraph 30, Stress 2 results in a $15,787,694.35 Equity Cushion which,
expressed as a percentage, equals a 22.92% Equity Cushion.
37. Accordingly, as a result of my analysis in Stress 2, the Equity Cushion would be
22.92%.
38. If priming on the DIP Loan is limited to $7,000,000.00, the Equity Cushion under
Stress 2 results in a $20,887,694.35 Equity Cushion which, expressed as a percentage, equals
32.75%.
39. Based on the testing of the HVS Appraisals and the CBRE Appraisal in Stress 1 and
Stress 2 scenarios, and the application of the results of such tests to the Equity Cushion analysis,
in my professional opinion, even under aggressively conservative estimates, there is a sufficient
Equity Cushion to adequately protect Poppy Bank's interests.
10
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Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing is true
and correct to the best of my information, knowledge, and belief.
Respectfully submitted,
Dated: January 14, 2025
Wilmington, Delaware
11
GAVIN/SOLMONESE LLC
/s/Edward T. Gavin
Name: Edward T. Gavin, CTP, NCPM
Financial Advisor to Richards, Layton &
Finger, P.A. on Behalf of the Sole Manager
Case 24-11647-MFW Doc 307-1 Filed 01/14/25 Page 1 of 3
Exhibit A
Case 24-11647-MFW Doc 307-1 Filed 01/14/25 Page 2 of 3
KEY VARIABLES:
Variable
Contributory
Value per Value of Hard &
SF Solt Coate
CBRE
HVS
Stress 1
Stress 2
$ 22.73 90%
$ 23.00 aliallit—
$ 22.00 35%
$ 22.00 17%
APPRAISAL VALUES:
Property:
CBRE:
Per SF Land Value Retention
Value: Percentage:
Land Area Hard & Soft
(SF) $ 2273 Costs to Date
Concluded
90% As Is Value
Montage Hotel Site
Pendry Hotel Site
Shared Services & Conf. Ctr.
Golf Clubhouse
PA 7,8,9
991,426
568,458
111,514
303,613
$ 22,535,113
12,921,050
2,534,713
6,901,123
$ 71,817,878
28,570,666
30,237,108
10,338,385
$ 64,636,090
25,713,599
27,213,397
9,304,547
$ 87,171,203
38,634,650
29,748,110
16,205,670
61,500,000
IHVS:
Montage Residences
Pendry Residences I
Pendry Residences 11
Total
Sources:
1,975,011
$ 44,892,000 $
140,964,037
$ 126,867,633
CBRE pg. 116 and 124, HVS Montage, pg. 9; HVS Pendry, pg. 9
98,100,000
23,500,000
54,500,000
$ 409,359,633
Note.- Poppy Bank is collateralized by 16 of 29 residences in the Montage Residence portfolio. We reduce the value proportionately below.
ESTIMA ED,VARI
Property:
CBRE:
Per SF Land
Value:
Value Retention
Percentage:
Land Area Hard & Soft Estimated Value
(SF) $ 2200 Costs to Date 35% - Stress 1
Montage Hotel Site
Pendry Hotel Site
Shared Services & Conf. Ctr.
Golf Clubhouse
PA 7,8,9
991,426 $
568,458
111,514
303,613
21,811,372
12,506,076
2,453,308
6,679,486
$ 71,817,878
28,570,666
30,237,108
10,338,385
$ 25,136,257
9,999,733
10,582,988
3,618,435
$ 46,947,629
22,505,809
13,036,296
10,297,921
IHVS:
Montage Residences " 605,484 7,349,323
Pendry Residences I & II 449,975 9,899,446
Total 3,030,470 $ 60,699,011
$ 140,964,037
$ 49,337,413
7,349,323
9,899,446
$ 110,036,424
Sources: CBRE pg. 116 and 124; HVS Montage, pg. 208; HVS Pendry, pg. 9
Montage Residences = 13.9 acres; Pendry Residences = 10.33 acres; land area calculated at 43,560 SF per acre
" Using 55.172414% of total Montage Residences projected value, reflecting Poppy collateral interest in 16 of 29 total lots
ES4tIMAixTEENAt1UE'~ STRESS ..
Property:
CBRE:
Value Retention
Percentage:
Land Area Hard & Soft Estimated Value
(SF) $ 22.00 Costs to Date 17% - Stress 2
Per SF Land
Value:
Montage Hotel Site
Pendry Hotel Site
Shared Services & Conf. Ctr.
Golf Clubhouse
PA 7,8,9
991,426 $ 21,811,372 $ 71,817,878 $ 12,209,039 $ 34,020,411
568,458 12,506,076 28,570,666 4,857,013 17,363,089
111,514 2,453,308 30,237,108 5,140,308 7,593,616
303,613 6,679,486 10,338,385 1,757,525 8,437,011
IHVS:
Montage Residences 605,484 7,349,323
Pendry Residences I & II 449,975 9,899,446
Total 3,030,470 $ 60,699,011
$ 140,964,037
$ 23,963,886
(
7,349,323 "
9,899,446
§ 84,662,897
Sources: CBRE pg. 116 and 124; HVS Montage, pg. 208; HVS Pendry, pg. 9
Montage Residences = 13.9 acres; Pendry Residences = 10.33 acres; land area calculated at 43,560 SF per acre
" Using 55.172414% of total Montage Residences projected value, reflecting Poppy collateral interest in 16 of 29 total lots
SENIORVEI`3
Description
Amount I
Poppy Bank (through Dec
17,2024)•
Default Interest through 8/1 /2025 '
Mechanics Liens
DIP
Subtotal
$ 34,756,746
$ 2,018,457
20,000,000
12,100,000
$ 68,875,203
• Source: Demand letter dated December 18, 2024
Hearing Notes Tables
Case 24-11647-MFW Doc 307-1 Filed 01/14/25 Page 3 of 3
SUMMARY:
Property[
Montage Hotel Site
Pendry Hotel Site
Shared Services & Conf. Ctr.
Golf Clubhouse
PA 7,8,9
Concluded Est Value Est. Value Est, Value Est. Value
As IS Value Stress 1 Stress 2 Stress 1 (A) Stress 2 (A)
$ 87,171,203 $ 46,947,629 $ 34,020,411 $ 46,947,629 $ 34,020,411
38,634,650 22,505,809 17,363,089 $ 22,505,809 $ 17,363,089
29,748,110 13,036,296 7,593,616 $ 13,036,296 $ 7,593,616
16,205,670 10,297,921 8,437,011 $ 10,297,921 $ 8,437,011
61,500,000 - $ - $ -
Montage Residences
Pendry Residences
Total
Equity Cushion:
Poppy Bank (Dec 17, 2024)
Default Interest through 8/1/2025
Mechanics Liens
DIP (full amount)
DIP (limited priming)
Total Senior Debt
Equity Cushion
% Equity Cushion
98,100,000 7,349,323 7,349,323 $ 7,349,323 $ 7,349,323 **
78,000,000 9,899,446 9,899,446 $ 9,899,446 $ 9,899,446
$ 409,359,633 $ 110,036,424 § 84,662,897 § 110,036,424 $ 84,662,897
$ 34,756,746 $ 34,756,746
$ 2,018,457 $ 2,018,457
20,000,000 20,000,000
12,100,000 12,100,000
68,875,203 68,875,203
$ 41,161,221 $ 15,787,694
59.76% 22.92%
$ 34,756,746
$ 2,018,457
20,000,000
7,000,000
63,775,203
$ 46,261,221
72.54%
$ 34,756,746
$ 2,018,457
20,000,000
7,000,000
63,775,203
$ 20,887,694
Using 55.172414% of total Montage Residences projected value, reflecting Poppy collateral interest in 16 of 29 total lots
32.75%
Hearing Notes Tables