Real Estate Expert Witness Provides Valuation of Housing Portfolio

    Real Estate Expert WitnessCase: Official Comm. of Unsecured Creditors of Tousa, Inc. v. Citicorp N. Am., Inc. (In re Tousa, Inc.), 422 B.R. 783 (Bankr. S.D. Fla. 2009)

    Background:  This case involved the decision of TOUSA, Inc. (“TOUSA”) to borrow, and to cause many of its subsidiaries (the “Conveying Subsidiaries”) to borrow $500 million on July 31, 2007, and to secure that debt by granting to the lenders liens on substantially all of their assets, which included multiple rare antiques and pieces of original vintage memorabilia. The proceeds of the loans were used to settle litigation against TOUSA and one of its subsidiaries, TOUSA Homes LP (“Homes LP”), that arose from the default on debt incurred to finance the Transeastern Joint Venture, a disastrous business venture that TOUSA undertook in 2005. The Conveying Subsidiaries, which were not defendants in the litigation and were not liable to the entities that financed the Transeastern Joint Venture (the “Transeastern Lenders”) nonetheless incurred liabilities and granted liens to secure the resolution of their parent’s liabilities. TOUSA and the Conveying Subsidiaries filed their chapter 11 petitions on January 29, 2008. In this adversary proceeding, the Official Committee of Unsecured Creditors of TOUSA, Inc. (“the Committee”) sought to avoid obligations and transfers pursuant to certain state and federal bankruptcy laws involving payment of interest on liens. The Committee also sought to avoid liens on a federal income tax refund for tax years 2005 and 2006 arising from losses suffered by TOUSA and its subsidiaries in tax year 2007.

    Expert Witness:

    Committee expert Charles Hewlett performed an analysis of the fair value of the homebuilding inventory assets owned by TOUSA and its significant Conveying Subsidiaries as of July 31, 2007. Hewlett provided his valuation conclusions to Clancy. The values provided by Hewlett were reliable, but his decision not to ascribe value to certain assets (including one asset sold post-Transaction for a substantial price) rendered his aggregate conclusions subject to challenge at trial.

    Hewlett was a Managing Director with RCLCO, a reputable real estate advisory firm, and has more than 25 years of experience in the real estate industry. He was a frequent speaker, moderator and panelist at various real estate industry events, and a guest lecturer and faculty member at various graduate business and real estate school programs. During his career, Hewlett had provided valuation services, market analyses, and feasibility studies to various clients, including large residential homebuilders and developers, on hundreds of occasions.

    Daubert Challenge:

    As discussed above, Hewlett is an experienced real estate professional who is well qualified to serve as an expert witness on real estate valuation issues. Nonetheless, Defendants moved to exclude Hewlett as an expert witness under Daubert, arguing that he is unqualified because he is not a licensed appraiser and his opinions are unreliable. One of the defendant lien lender’s real estate experts in particular appeared to strongly believe that only a licensed appraiser was qualified to offer any views on the value of real estate.


    The Court found that Hewlett was qualified to offer expert witness testimony in this case and the opinions he expressed were reliable. In the evaluation of the evidence and credibility of the witnesses, the Court found that it was inconsequential that Hewlett was not a licensed appraiser, and believed that he could offer opinions regarding the value of real estate assets as an expert witness at trial.