An Inside Look into the Commercial Real Estate Mess

July 8, 2009

I recently read a interesting article by Joel Ross on Hotel/ entitled The Distressed Debt Conundrum.  The article provides an “insider” look into the world of both syndicated and securitzed commercial loans and examines the reason why we have not seen more bankruptcies.

The major reason why we  have not seen more bankruptcies is the fact that over the past 16 years loan agreements have incorporated a standard “carve out” provision whereby the borrower becomes personally liable (if he already isn’t) in the case the entity files for bankruptcy.

If the loan has been securitized,  the special servicer often purchased the interest only strip (IO tranche) in order to get the servicing.  The article points out the extreme conflict of interest between the special servicer who would be foreclosing on his own interest and the AAA bondholders who want a FAST foreclosure or workout in order to recover their value.  Similar conflict issues arise in syndicated loans.

As the author points out that, “tranche warfare ensues” in most of these cases.  Compounding the problem is the fact that many special servicers are understaffed or have workout personnel that are too inexperienced to work with the battling parties to find an acceptable solution.

Our company can provide both support to the special servicer or work with a distressed owner to workout an existing loan.

To read the entire article, go to The distressed debt conundrum

For more information please contact Scott R. Lodde at (239) 344-7799 X101

or John McCarthy at (239) 344-7799 X102


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