Commercial property owners face not only economic challenges, but other complex decisions and concerns they must consider as they navigate through the current crisis -- not least of which is dealing with their mortgage. Listed below are 5 (non-exclusive), top-line steps that a commercial property owner/borrower must take when embarking upon a “workout” discussion with a lender:
1.
Review all relevant loan documents with your attorneys to get a good handle on these provisions in order to formulate a cohesive strategy and prepare for what will likely be brought to bear in future discussions and negotiations with the lender AND, as a first priority, to avoid the triggering of personal liability under any guaranty, indemnity or the like.
2.
Organize a complete package of financial and operating information that your lender will likely require when considering a Borrower’s request for relief on debt service payment. This information may include (but is certainly not limited to): Current balance sheet; most recent trailing 12 month operating statement for the property; current rent roll; pro forma detailed budget/operating statement on a monthly basis for twelve (12) months; aged a/r and a/p reports; personal financial statements for the guarantor(s); current payroll costs and information as to employees layoffs or hours reductions; information/status regarding PPP loans or similar governmental aid; and for hotels: year end 2019 and monthly 2020 STR reports, details on any outstanding or planned PIP or capital projects, recent brand Quality Assurance Scores and hotel reservation cancellation details.
3.
Prepare a detailed outline of your proposal to the lender including the nature of the deferral (i.e. are you asking for a full deferral of all principal, interest or a partial deferral) length of deferral being requested and provisions for the extension of that term, repayment terms for any amounts deferred (i.e., will the deferred payments be paid off in installment during the loan term, at the end of the term, with or without interest accruing, etc.).
4.
Prepare for your initial discussion with the lender’s representative and for the detailed questions that may be posed during your initial discussion and follow up conversations. This definitely entails being intimately familiar with your own property’s financial information and other relevant data, the data for the competitive set of similarly situated properties in your property class and geographic location and for your property class industry as a whole.
5.
Hope for the best and plan for the worst: Strategize as to your next steps in the event that your lender is not amenable to granting you any financial relief or the response from the lender is less than optimal. This leads to the really tough questions as to the ability and willingness to fund additional equity capital and whether the values and prospects for the property warrant further cash outlay.
Again these are just 5 steps of many more that must be considered in dealing with the difficult and complex issues that come up in the context of borrower/lender discussions. These situations are not static – there are a lot of moving parts require a lot of time, thought and attention and a good deal of creativity.
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If you have any questions or would like additional information, please contact Michael A. Dinowitz (
mdinowitz@egsllp.com
),
(646) 895-7127, Partner in EGS’ Real Estate Group,
or the primary EGS attorney with whom you work.
