The Bon Morro, LLC and its affiliated entities filed for Chapter 11 bankruptcy protection on November 2, 2025, in a case that highlights how a landlord-tenant dispute can push an otherwise thriving real estate project into insolvency, according to court documents filed in the United States Bankruptcy Court for the District of Massachusetts, Eastern Division.
Despite maintaining 95% occupancy across 451 residential units and generating approximately $17 million in annual residential rent, the debtors were unable to refinance $167.5 million in construction loans that matured in July 2025. The primary obstacle, according to Chief Restructuring Officer Stephen Gray, was the landlord's alleged refusal to amend problematic terms in the 99-year ground lease that made the project unattractive to potential lenders.
The Valuation Disconnect
The impact of the ground lease dispute on the project's value is stark. Gray's declaration, filed November 3, 2025, states that under the existing ground lease terms, "there is no equity value in the Project as of the Petition Date." However, if the landlord, Boylston Kenmore 1260, LLC, had cooperated to amend the ground lease "to contain commercially reasonable and market standard terms that are readily acceptable to conventional leasehold mortgage lenders," the leasehold owner's interest would have an estimated value of "at least $190 million."
This $190 million valuation gap illustrates the financial consequence of what the debtors characterize as the landlord's bad faith conduct. The ground lease, originally executed on July 15, 2018, requires the leasehold owner to pay $3 million in annual rent and extends until October 31, 2119.
The project consists of 451 residential apartment units—including studios, one-bedroom, and two-bedroom units—along with seven commercial units. Five commercial units are leased to Chase Bank, Carbon Health, Dave's Hot Chicken, The Halal Guys, and The Theater Offensive, generating approximately $4.1 million in annual rent. Approximately 15% of the residential units constitute subsidized affordable housing, while the remaining leases are at market rates.
The Refinancing Roadblock
Construction of the project was completed in 2022, and the debtors subsequently sought to refinance their construction debt with long-term, low-interest financing typically extended to stabilized developments. Beginning in 2024 and continuing throughout 2025, in anticipation of loan maturities in July 2025, the debtors conducted a debt capital markets search process, engaging Walker & Dunlop, described in court documents as "one of the premier debt brokerages in the country for commercial multifamily residential finance and advisory engagements."
As the refinancing process proceeded, however, it became clear that "the Ground Lease for the Project contained a number of non-standard commercial terms" that "materially limited the Debtors' ability to refinance the Prepetition Loans," according to Gray's declaration.
In March 2025, the debtors identified Freddie Mac—described as "the market leader in multi-family residential real estate finance"—as a preferred refinancing partner and submitted a loan application. Through communications with Walker & Dunlop, Freddie Mac's agents, and other prospective refinancing partners, the leasehold owner concluded that it "could not refinance the Prepetition Mortgage Loan without amending the Ground Lease."
The previous mortgage lenders had obtained relief from several onerous ground lease terms through a "Ground Lessor Estoppel Certificate and Amendment" dated November 7, 2023 (the "Madison Estoppel"). However, this document expires when the mortgage loan is repaid, "which leaves the Debtors with no reasonable ability to refinance or sell its interest without the Landlord agreeing to amend the Ground Lease."
Cooperation Failure
The debtors' position is that the solution was straightforward: the parties simply needed to modify the ground lease "to bring the document's non-standard terms in line with the terms typically found in other commercial real estate ground leases, changes that would have not materially impacted the Landlord's ability or likelihood to receive its ground rent."
Critically, the debtors argue that such cooperation was contractually mandated. Article 6.6 of the ground lease specifically provides that the landlord "shall cooperate" with all requests by the leasehold owner and a permitted lender for ground lease amendments, further requiring that the landlord "reasonably promptly . . . negotiate and then execute . . ." an amendment "effecting such modification(s)."
In March and April 2025, the leasehold owner approached the landlord to consensually amend the ground lease. Gray's declaration asserts that executing such an amendment would benefit the landlord by reducing the risk of default and potentially attracting stable institutional investors as long-term tenants.
However, Gray states: "Despite the Ground Lease's cooperation requirement, I understand that the Landlord refused to approve the Leasehold Owner's reasonable requests for an amendment to the Ground Lease by consistently engaging in conduct that has prevented a commercial resolution to the Debtor's ability to refinance the Project."
The declaration further alleges that "the Landlord engaged in bad-faith extortionary tactics, such as demanding (i) an upfront $1.5 million payment and (ii) an increased security deposit equal to three years' rent (despite the fact that security deposits for similar ground leases typically require, at most, one year of rent without adjusting for rent increases) as prerequisites for any negotiation."
Gray states that the debtors "repeatedly warned the Landlord that failure to amend the Ground Lease would prevent any ability to refinance the Prepetition Loans, harm the Ground Lease itself, and also result in defaults thereunder and the likely need to file for bankruptcy."
The Debt Structure and Defaults
The debtors' capital structure includes two primary debt instruments. The Prepetition Mortgage Loan, with a principal amount of $162.5 million as of the petition date, was originated on October 30, 2020, as a $165 million construction loan and restructured on an interim basis pursuant to a Loan Agreement dated November 7, 2023. The lenders are 1260 Boylston Street Lender, LLC, Athene Annuity and Life Company, and Aris Mortgage Lending, LLC, with 1260 Boylston Street Lender LLC serving as administrative agent. The loan is secured by, among other things, a leasehold mortgage on the project and matured on July 17, 2025.
The debt structure also includes a $5 million subordinated loan from GCP Asset Backed Income (UK) Limited to DMP Scape Boylston LLC. This loan was originally made to a different entity but was modified on January 17, 2025, to make DMP Scape the borrower. The subordinated loan matured on July 15, 2025.
As anticipated, DMP Scape defaulted on the subordinated loan when it matured on July 15, 2025, and the leasehold owner defaulted on the mortgage loan two days later. Following the defaults, the debtors engaged with both lender groups "to address the maturity defaults or amend the Prepetition Loans to allow more time for the Debtors to reach a resolution with the Landlord or otherwise refinance the Prepetition Loans."
The immediate catalyst for the bankruptcy filing came on October 13, 2025, when the subordinated lender noticed a secured party sale of its collateral—DMP Scape's membership interests in Holdings—under Article 9 of the Uniform Commercial Code. With the sale scheduled to commence on November 6, 2025, Gray states, "the Debtors had no choice but to seek chapter 11 protection."
First Day Motions and Operational Needs
Concurrent with the bankruptcy filing, the debtors filed seven "first day motions" seeking various forms of relief to maintain business operations during the Chapter 11 cases. Gray's declaration emphasizes that the debtors "have limited the First Day Motions, and their requests for emergency rulings under MLBR 9019-1(f), to only those motions where the failure to receive such relief on an emergency basis would cause immediate and irreparable harm to the estates."
The Cash Collateral Motion seeks court authorization to use cash collateral in accordance with a budget. The Prepetition Mortgage Agent, on behalf of the mortgage secured parties, is the only party with a lien on the debtors' cash. Gray states that prior to the petition date, "the Debtors engaged in numerous discussions with the Prepetition Mortgage Agent in an attempt to obtain an agreement on consensual use of cash collateral but were unable to reach an agreement." The debtors intend to continue negotiations to narrow remaining disputes.
Gray emphasizes the immediate need for cash collateral access: "Without the ability to use Cash Collateral to pay ordinary course maintenance, utilities and related services in the Project, the Debtors' commercial and residential tenants would face immediate, irreparable harm."
The Utilities Motion seeks to ensure continued provision of utility services to the project. The debtors' utility providers include Boston Water and Sewer ($15,000 monthly), Eversource for electricity ($40,000 monthly), BP for electricity/energy ($2,500 monthly), National Grid for gas ($6,200 monthly), Crown Castle for internet ($5,000 monthly), and New Horizon Communications for fire life safety and network monitoring ($800 monthly). The debtors propose to fund a segregated account with a $35,000 deposit—approximately one-half of estimated aggregate utility expenses—as adequate assurance of future payment.
The Taxes Motion seeks authority to pay certain prepetition taxes and fees, specifically approximately $533,170.98 in second-quarter property taxes owed to the City of Boston. Gray notes that "the Debtors' failure to pay certain taxes and fees when due may adversely affect their business operations" and that tax authorities "may have the ability to initiate audits if taxes and fees are not timely paid."
The Insurance Motion seeks authorization to maintain existing insurance programs through various carriers, with aggregate annual premiums of approximately $339,941. The policies include umbrella coverage through ACE Property and Casualty Insurance Company ($84,929 annually) and property, general liability, employee benefits liability, and auto coverage through The Travelers Indemnity Company (totaling $255,012 annually).
Additional first day motions include requests for joint administration of the three related cases, authorization to file a consolidated creditor matrix, and authorization to continue operating the existing cash management system consisting of three bank accounts: a deposit account, a rent account, and an operating account.
Bankruptcy Strategy and Adversary Proceeding
The debtors' Chapter 11 cases have been filed as "single-asset real estate" cases under Section 101(51B) of the Bankruptcy Code, subjecting them to specific provisions governing such cases. The debtors are operating as debtors in possession under sections 1107(a) and 1108 of the Bankruptcy Code.
Gray outlines the strategic objectives: "The main goal of these Chapter 11 Cases, subject to ongoing negotiations with the Prepetition Loan Parties and the Landlord, is to pursue litigation against the Landlord via an adversary proceeding while concurrently working towards the confirmation of a chapter 11 plan and the ultimate refinancing of the Prepetition Loans or a sale of the Debtor's leasehold interests."
Substantially concurrently with the bankruptcy filing, the debtors filed an adversary complaint against the landlord "to pursue various claims against the Landlord under the Ground Lease and applicable state law." Gray states that this Landlord Complaint "will further elaborate on the bad faith conduct of the Landlord over the past seven months that drove this financially healthy Project into bankruptcy."
Any proceeds from a judgment obtained against the landlord "can then be distributed for the benefit of all creditors and equity holders, consistent with the Bankruptcy Code and applicable law," according to the declaration.
Project Background and Social Mission
The declaration provides context on the current majority owner's involvement and the project's social mission. The individual investor "previously held a passive stake in the Project and was not involved in the negotiation of the Ground Lease, planning the Project, or the diligence process." He planned to "rescue, stabilize, and deleverage the Project, which was in jeopardy due to its debts."
According to Gray, the investor "strongly supported the Project's goal of increasing and maintaining the availability of affordable family housing in Boston by creating highly efficient and flexible multifamily housing for young professionals and students in order to free up more family-friendly triple-decker housing for local families."
The investor believed the project "could be a successful business venture if the tenant reduced its debt levels by refinancing the Prepetition Mortgage Loan with a long-term, low-interest loan," given the project's "high levels of occupancy and rental income."
Gray notes that "lenders routinely extend such loans to stabilized developments (such as the Project) after construction is complete, and the development is sufficiently occupied and generating income."
The case is In re: The Bon Morro, LLC, et al., Case No. 25-12379, in the United States Bankruptcy Court for the District of Massachusetts, Eastern Division.
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