A Frequent Scenario in Today’s Market!

If you own commercial real estate, it is likely you are either seeking solutions to a problem you never anticipated or seeking opportunities to help someone resolve an asset or portfolio problem. Let’s focus on the former group first. Most likely, you borrowed when debt was plentiful and relatively cheap. You expected higher rents, high occupancies and an ability to refinance, renew or extend your debt if not sell the asset for a profit within 3 years or so.

Now, you are faced with property values dropping by as much as 35-40% in some parts of the country and tenants who are either going out of business, reducing the number of leased locations or seeking reductions in monthly rents due to the economy. Your equity investors knew they had money at risk but just did not expect for the bottom to fall out. Your banker, who generally has been supportive and a believer in your company and your ability to deliver, is now worried and wants to negotiate your bringing more equity to the table to support covenant requirements for LTV and other parameters. However, you don’t have the money for not only the one in question but also selected other properties that this banker as well as others have begun to express some concern.

Morever, you need to establish reasonable expectations on what your banker is willing and capable to do now vs. later. Making outrageously unrealistic requests for large loan discounts is tremendously damaging to the relationship. It is not a great time for you to sell assets but because you grew in selected markets that probably caused you to be too thinly spread, you now must retrench. You need to sell assets and hope to at least retain some of your portfolio in your predominant markets.

How Portfolio Property Advisors Can Help!

We have clients who are interested to work with you and your banker cooperatively to get a deal done quickly that benefits all parties. PPA works with you and an investor, all of whom are owner/operators themselves in the subject property type, to assist you in creating a plan of action that can be presented to the bank. In most instances, working with these “whites knights”, we like to consider not only on the subject property but also any other properties where you may have loans with that bank.

We pay close attention to the bank’s objectives given the breadth of your customer status with the bank, your deposit history, the bank’s commitment to your geography as well as property type and circumstance, etc. etc. We ascertain that you make only reasonable offers to the banker. Often it makes sense for the bank to agree to a discount on the note where the debt is off their books, you avoid foreclosure and the new owners feel they have acquired a good asset at a reasonable price.

We work all over the country in all categories of CRE assets and specialize in moving quickly to respond to urgent situations.

Our partnership with Third Wave Partners of Los Angeles, California through the Next Wave Advisors joint venture and our relationship with MB Real Estate based in Chicago and New York City, are integral to working with banks and commercial real estate owners to address many of the needs mentioned above.

If you would like more information on how PPA can confidentially work with you and your bank, please contact Larry Brewster at 281-342-2122.