We’re investigating green buildings, from the perspective that some portion of the huge amount of distressed commercial real estate will include some green buildings.
Earlier this week, Bill Weinberg focused us on these preliminary topics:
- is the collateral raw land or does it include improvements (buildings or other structures)?
- operational and maintenance issues, including the possibility of warranties on equipment or systems
These are all topics that are new to me – green buildings were science fiction to us as we worked through the commercial real estate busts in the late ’80s and early ’90s.
Let’s stop here and get these quick thoughts on the board: what do I need to be doing right now if I discover that the collateral has some "green building" feature to it?
- Due diligence (one prior; second prior post):
- hire a qualified expert to assist in the evaluation of the building, the laws and regulations relating to green buildings, and the materials that you need to complete your files (and corresponding changes to your loan documents) – so that you will be prepared to operate the building
- dig into the loan files to find any materials collected at the loan closing (or during servicing)
- review your loan documents to identify provisions relating to green buildings, in particular provisions relating to compliance with laws, collateral assignment of vendor warranties (and service contracts), identification of any local permitting requirements (and renewal dates), etc.
- expand your ESA procedures to cover any green building features, compliance, etc.
- Negotiation letter: to the extent that you identify any deficiencies, add covenants covering them in the negotiation letter
- Forbearance agreement: again, to the extent that you identify any deficiencies, add –
- covenants covering them
- make compliance with those new covenants –
- a condition to the forbearance terms
- a new default under the loan
Question: what do you want to add to this preliminary list?
More to come from Bill Weinberg, and my conversation with him.
Please post any comments, questions or war stories below.