Honesty and Transparency Key to Loan Workouts
A borrower burdened with a troubled commercial real estate loan should be upfront with his lender about his problems and be aggressive about finding a solution.
That was the advice of a panel of loan-workout experts on a recent episode of the “Commercial Real Estate Show.” The episode features interviews that I conducted at the Information Management Network’s Special Asset Executive Conference on Real Estate Workouts, held in Atlanta in June. In addition to loan workouts, the episode covered short sales, note sales and foreclosures.
Face the Music
“The best workouts I’ve seen are the ones where the borrower takes an active interest in a solution and where the borrower comes to the bank first and says, ‘I’m in trouble, and this is why I’m in trouble,” said Robert Brookes, president of Home Federal Bank in Hollywood, Fla.
My other guests agreed. “Lenders will be more likely to work with you as a partner if you’re honest with them and lay your cards out on the table,” said Alan Tantleff, senior managing director of New York-based FTI Consulting. “I can’t tell you how many times I’ve worked with lenders who don’t trust the borrower. Then it becomes personal, and they want to go after the guy.”
Reach Out for Help
In addition to being upfront about their situation, troubled borrowers should be aggressive in trying to find a solution to their woes, my guests and I noted.
“When we were coming up, we had to beg, borrow and steal from friends and relatives to try to make things work,” Brookes said. “A lot of that is a step [troubled borrowers] are not willing to take.”
One source of help can be the private-equity market. “The best thing borrowers can do is go find private-equity partners who can help them stabilize their properties or give them the capital they need to go negotiate with their banks in order to get back control of their assets,” said Wendell Burks, senior vice president of special assets for Regions Bank. “There is so much equity out there.”
Borrowers with CMBS loans set to mature in the near future may be able to finance their payoffs, said Grant Rogers, CEO of New York-based Talmage. “Most of these deals will perform until maturity and then, because they’re ’07-vintage deals, they’re underwater,” he said. “They’re way over-leveraged, and when the borrower comes to maturity, they can’t repay us … In fact, borrowers are finding that there is a financing market, and we’re getting repaid at par, and it’s a happy ending for everyone.”
On the other side of the table, lenders must be realistic about troubled borrowers, guests said. “I think with the volume [of distressed assets] that banks have had, they have had to look at the [workout] process differently,” said Phillip Mays, chief legal officer at Glass Ratner in Atlanta. “If banks want to actually work through the deals and maximize their recovery, a lot of times that involves really opening their eyes to what the borrowers’ and the guarantors’ capabilities are.”
Michael Bull, CCIM is founder of Bull Realty, Inc, a U.S. commercial real estate sales and advisory firm headquartered in Atlanta, and the host of the nationally syndicated Commercial Real Estate Show. You’re invited to connect with Michael on Twitter and LinkedIn.
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