After almost 300 postings since our first one in September, 2008, it’s time to give the borrower perspective more than a few quick comments. During this time period, I’ve touched on the borrower view of CMBS loans and gave a few quick, general tips in the nature of “do this” and “don’t do this” in a workout or defaulted loan.
But we need to dig deeper.
So, over the next few weeks (or months – you never know when a “hot” topic will jump up), I’ll cover tips and topics on workouts from the borrower perspective.
If you’re a lender or a loan servicer, do NOT tune this out: an understanding of this perspective is in valuable, and fundamental, in crafting your own strategy in achieving lender’s objectives in a loan workout.
This series will be a mixture of high-level statements and low level tasks and tips (as in bumping against pebbles on the path).
The first step, of course, is the “reality” check:
- Performance: how is the property performing? In the short term? In the long term?
- Competition: how is the property performing relative to the market? In the short term? In the long term?
- Financial Support: how much “staying power” does ownership have to support the property?
- Lender Bias: is the lender open to, andor the type of loan capable of, a loan modification, assumption or pay-off? What are lender’s constraints or predispositions?
- Leverage: which party has “what” leverage points and on “what” issues?
The next questions center in on the desired “end game” for the borrower, its owners and any guarantors. Here’s a quick list that will help you get started:
- Cash: keep the cash from property operations
- Liability: limit or avoid liability of the owners or any guarantors
- Time: buy time for the market to recover, or for new ownership to take over the property, or for other assets to be “repositioned” or sold
- Traps: lay a few “land mines” for the lender to step on (thus creating leverage
- Taxes: Is there an income tax strategy or plan that needs to be implemented? (For example, avoid cancelation of debt income)
- Reputation: maintain reputation in the market for ownership, or even for the property
- DPO: buy the note at a discount (via a discounted loan payoff)
- Restructure: “resize” the note by reducing, deferring note payments or restructuring the debt into a Note A and Note B structure
If you have other items to add to these lists, please post them below.