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How Loan Workouts Are Going, According To The Experts

In an environment in which lenders have been triaging loans like a hospital would patients, as Lucrum Realty principal Aron Youngerwood described it, it is best for borrowers to approach them with caution, he and other panelists in Bisnow's Loan Workout Tips and Tricks webinar said this week.

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One of the most important ways successful borrowers are doing that is by being realistic about the extent of relief they can get from their lenders, the panelists said.

"It's when somebody is coming in and expecting a wholesale, completely new restructuring like they would have gotten 10 years ago," Atlas Capital Advisors principal Bert Haboucha said. "When they come in with that mindset, the asset manager on the other side is saying, ‘We are so far apart, I don’t have the time to even bother with this.'"

"Ironically, if you ask for too much, you get put on the back burner," Youngerwood added.

LBG Real Estate Cos. Managing Partner Leslie Lundin, a former lender whose current firm owns shopping centers throughout the West Coast, said she has gotten complaints from friends who are lenders that "borrowers are going in and asking for everything when they just didn't need it, and that was troublesome."

Instead of that tack, Lundin said in March LBG did cash flow statements and looked at how it would handle six months without rent at its properties. Based on that analysis, it successfully suggested to its bank that it should not pay principal for three months, she said.

Lenders are especially hesitant for wholesale restructurings given the uncertainty presented by the coronavirus pandemic, effectively kicking the can down the road, Haboucha said. At least for the time being, "this is going to be one of these things where the lenders are triaging every couple of months," he said. 

For much the same reason, Lundin said a lot of lenders, especially banks, are in no hurry to foreclose, given a lack of certainty around the long-term values of many properties, especially retail and hospitality. 

With commercial mortgage-backed securities lenders, the calculus is trickier. How those loans are handled may depend on the motivation and property preferences of a given CMBS pools' controlling class, Lundin said.

Clockwise from top left: Bisnow West Coast Vice President Mike Guimond, Atlas Capital Advisors Due Diligence and Asset Management Consultant Karen Stager, Lucrum Realty principal Aron Youngerwood, Atlas Capital Advisors principal Bert Haboucha and LBG Real Estate Cos. Managing Partner Leslie Lundin.

Youngerwood, whose company advises borrowers and owners on ways to seek loan relief, said he tells clients that know they are about to default to reach out to the servicer weeks earlier if possible. That opens up the door to their loan file being handled in a "performing loan consent" bucket in effectively expedited fashion by the master servicer of the CMBS. In that case, relief in the form of aid like debt service coverage ratio waivers might be sufficient and take just a few weeks, with fees from $10K to $25K, he said.

Otherwise, delinquent loans are sent to special servicers, which means an origination fee of up to 1% on outstanding principal to the special servicer, other costs and anywhere from six weeks to four months or more, Youngerwood said. 

“If you know what you need and it’s something minor, you really should look carefully at whether you want to throw yourself into special servicing because everything explodes over there,” Haboucha said, referring to the accumulation of fees and the long time frame. 

Lundin said LBG has one CMBS loan hit with a minor shortfall tied to Chuck E. Cheese and 24 Hour Fitness, both of which have filed for bankruptcy amid the pandemic. LBG didn't want to go into special servicing and take on extra fees with a small shortfall, so it just made up for it itself, according to Lundin.

“You have to really make a judgment call on how much aid you need because you don’t want to be put in the bad-child pile,” Lundin said with a laugh. “You want to be in the good-child pile.”