Bankr. M.D.N.C.- In re Fall Creek One- Valuation of Glamping Pods

Summary:

In this Chapter 11 case, Fall Creek One, LLC sought to reorganize after defaulting on a $4.4 million loan from Marine Federal Credit Union secured by real estate (a North Carolina property used for short-term rentals, including cabins and glamping pods). The debtor proposed a plan valuing the secured claim at only $2 million, while the creditor asserted a secured value exceeding $4.1 million.

The court, under § 506(a), had to determine the secured value of the creditor’s claim by applying a fair market value standard. Both parties presented expert appraisals, but their approaches diverged:

• The debtor’s appraiser favored a sales comparison approach.
• The creditor’s appraiser used an income approach based on anticipated rental income after planned improvements.

The court ultimately rejected the debtor’s low estimate as unsupported and somewhat inconsistent with its own plan projections, and it found that the income approach was more appropriate, especially since the debtor proposed to retain the income-producing property. Importantly, the court emphasized that valuation should reflect the property’s anticipated state after completing ongoing improvements (glamping pods, cabin repairs) and rely on the debtor’s own income projections, not historic underperformance.

The court calculated the fair market value at $3,794,314.89 — higher than the debtor’s proposal but lower than the creditor’s maximum — using the debtor’s projected net income and a 9% capitalization rate, minus the costs to finish improvements.

Commentary:

While Fall Creek One is a business Chapter 11 case, it offers valuable lessons for consumer bankruptcy attorneys when valuing secured assets, particularly in Chapter 13:

• Burden of Proof Falls on the Debtor: The court put the burden on the debtor, especially since they had to prove their Chapter 11 confirmation elements. In consumer Chapter 13 cases, debtors similarly bear the burden when seeking to strip liens or bifurcate undersecured claims, so preparation and credible evidence are key.
• Income-Generating Assets Must Be Valued on Income Potential:  The court’s insistence on using the income approach — rather than a simple comparable sales or cost approach — underscores that when debtors propose to retain income-producing assets (like rental properties, commercial vehicles, or business equipment), valuation must reflect their future income potential, not just current market prices or past performance. For consumer cases, this could apply to investment properties or side businesses, where the debtor’s own projections carry weight in determining fair market value.
• Debtor’s Own Projections Can Bind Them:   The court was clear-eyed about the inconsistency between the debtor’s feasibility projections (used to prove the plan could work) and the lower valuations offered for claim bifurcation under § 506(a). In consumer Chapter 13, debtors who present optimistic income or expense projections to secure plan confirmation may find themselves bound by those same numbers when valuing secured claims (for example, cramming down auto loans or investment property liens). Attorneys should advise clients carefully to avoid undercutting themselves.  This can also impact later attempts by a debtor to sell property,  with any "increase"  in value  opening up issues about whether that constitutes a "substantial and unanticipated change in circumstances"  sufficient to justify a modification of the dividend to unsecured creditors. 
• Improvements and Repairs Matter:  Just as the court valued the property based on completion of the glamping pods and cabin repairs, consumer debtors seeking to value collateral (like home renovations or business equipment upgrades) should account for near-term improvements, not just “as-is” condition. Courts will look at what the collateral will reasonably be worth in the near future, especially when the plan’s success depends on it.  
• Choice of Appraisal Method: The opinion highlights that courts may discount or even reject appraisals that use inappropriate comparison pools or unjustified assumptions. For consumer debtors disputing valuations (say, for real estate or vehicles), it’s not enough to get “any” appraisal — the selected method must align with the asset’s intended use and the debtor’s situation.  Again  see   Alig v. Quicken Loans,  where the 4th Circuit Court of Appeals looked at improper disclosures prior to appraisals.

With proper attribution,  please share this post.