In a recent survey of bankers on sentiments and intentions for 2010*, it was reported that 55% expect to deploy extend and pretend terms to address pending loan maturities. However, these 55% noted the amount of time would range only between 1 and 6 months. The recent FDIC policy statement on “prudent” commercial real estate loan workouts is encouraging to many that extend and pretend is more acceptable to regulators. Nevertheless, the facts are that thousands of properties will not receive this treatment and the owner will be required to pursue other options. We encourage that these options be identified well in advance of learning the extension outcome on the debt of a given property or portfolio.
A Tool for Immediate Decisions – A Model for Future Competitive Advantage
The PPA Extend and Pretend AnalysisTM provides a commercial real estate or multi-family owner the analyses and information necessary to make informed strategic and tactical decisions regarding the likelihood of an extension or renewal at debt maturity of a given asset with a given lender based on several factors. It becomes the foundation for a new model on how to track interactions with lenders over time on a given asset or portfolio resulting in more effective negotiations and results.
PPA can work with the owner to build this custom model as part of optional follow-up phases to the initial Extend and Pretend AnalysisTM. The follow-up reflects keeping track of your lender communications as well as changes in the public as well as not so public circumstances of each of your lender’s. This data is then used to support a model of lender engagement and plan of execution that more likely optimizes 1) extension or renewal possibilities and/or 2) other necessary although potentially less favorable options.
The Process and Key Metrics
Our method takes data on the property’s demographics, financial performance, financing structure/terms and combines it with study of that lender’s communications with the borrower as well as that lender’s circumstances which are influencing decisions around extensions and renewals.
Beyond just running the numbers, the incremental value of this consulting engagement is specifics on the business strategy, financial health, regional or property type emphasis, oversight from regulators, among other criteria, on the lender. The purpose is to understand the information that is not immediately or easily available to the owner. It is this information that will help the owner/borrower not only be more prepared for any pending debt renewal discussions, but more so, identify opportunities to work more cooperatively with the lender to result in a win-win outcome. PPA does not contact the lender regarding the specific owner or owner’s property unless the owner and PPA agree to do so with specific objectives in mind that would contribute to the desired win-win outcome.
The Deliverable
The Extend and Pretend AnalysisTM deliverable is a report by property including a recommendation on the likelihood of an extension on that asset and the likely terms as reflected given noted tendencies of that lender in similar situations. Often, in this process, we will learn that the lender is open to options that the borrower would have never considered or known possible without this analysis. This is particularly true when we execute the analysis well in advance of maturities and examine across the portfolio’s multiple lenders who have varying circumstances and strategies that in today’s environment can change often.
PPA has a worksheet that gathers the necessary information on each property. We will interview selected members of the management team who know the asset well and have the responsibility for the relationship with a given lender. Fees are charged hourly. The turnaround for a single asset could be within 7-10 business days and for a portfolio, depending on size and complexity of the assets, 4 to 6 weeks.
If you would like a quotation for a property or portfolio, please contact Portfolio Property Advisors at 281-342-2122.
* Jones Lang LaSalle 2010 Bank Sentiment Survey.