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BARBARIANS AT THE GATE

For property owners facing loan defaults, staving off lenders and special servicers can feel like a losing battle. So we spoke to someone who's won a couple of skirmishes lately: Armand Nicholi, CFO of Breakwater Equity Partners, a consulting firm that specializes in commercial loan workouts.
Breakwater rescued the owners of 2400 W Marshall, a 111k SF, single-tenant flex building in Texas. (Where was he during Battle of the Alamo?) The owners bought the property as a TIC investment in 2006 and were facing a loan maturity, but couldn't refinance because the credit tenant?s lease had a 90-day out clause, and ?lenders regarded that as very risky.? (The property's multi-owner structure wasn't too popular, either.) After negotiations with a well-known special servicer failed, Breakwater put one of the TIC owners? special purpose entities into bankruptcy, buying enough time to negotiate two five-year lease extensions, remove the 90-day out clause, and do a refi.
Breakwater's digs are located at 3636 Nobel Dr in San Diego. Late last year, the firm won $9.3M in settlements against the sponsor, insurers, developer, and other parties connected to another TIC deal in Texas, the 345k SF Met Center 10 office building in Austin. Armand says the firm used a litigation strategy, but only ?because we were absolutely certain of the torts of the claims that we had?—including the fact that the defendants knew the building had a cracked slab and didn't disclose it to the TIC investors until after they bought the property. The flaw led to doors not shutting properly, drywall cracks and loss of tenant lease renewals. The settlement will go toward repairs.
According to Armand (here playing Where's Armand?), workout strategies come in three main flavors: economic (typically a loan mod), litigation, and bankruptcy (when a plan of reorganization might be a tenable solution). Breakwater offers experts for all of these strategies—finance, real estate, and law. He doesn't see the distress easing, especially for TICs. The challenge for all owners will be taking on new debt without diluting their equity position. Armand was a co-founder of Hatch Ventures, which invested in early-stage tech companies. In his spare time, he's an avid paraglider and two-time finisher of Tempe Ironman.

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