Alice Cooper's "School's Out" is often heard in May to mark the end of a typical school year and usher in summer. But it's March 2020, and these words have never rung more true.
No more pencils
No more books
No more teacher's dirty looks
Out for summer
Out till fall
We might not come
Back at all
School's out forever ...
The pandemic forced a reckoning, transforming student life and learning to be 100% remote, which destabilized an already struggling student housing sector.
Pre-pandemic, CMBS student housing loans were troubled as supply outstripped demand. Impacting the market was a decline in student matriculation along with an increase in student housing options. Lured by bright and shiny objects, students elected to move to more modern, amenity-rich buildings, leaving owners of older properties to face rising vacancy rates.
THE BACKSTORY
A Philadelphia apartment owner had a CMBS loan backed by 33 buildings used for student housing at a major university. Prior to COVID, the loan had been in default for about a year. Real Property Capital, the owner's mortgage banker, originally believed the Borrower could refinance, but with the pandemic, everything came to a screeching halt.
PUT TO THE TEST
- Occupancy at the properties had been soft pre-Covid and cash-flow wasn't expected to improve any time soon. Acting on advice from counsel (and prior to THG's involvement), the Borrower moved to put the entity in bankruptcy, triggering personal recourse under the loan terms.
- With patience wearing extremely thin, the Lender believed taking legal action would be the best approach to remedy the situation.
- The Lender was owed the UPB plus almost 24 months of Past Due Interest, Default Interest, Late Fees, Late Charges, and Defeasance. Refinancing proceeds would not cover the Borrower's full obligation to the Lender.
HOMEWORK LATE AGAIN?
Enter THG. We negotiated 6 months to payoff the Special Servicer in exchange for the Borrower depositing earnest money (to be applied at closing) along with the“deed in the drawer” should the Borrower fail to close. Holding out hope for selling the property in an impossible market, the Borrower languished for 3 months before firmly deciding the best option would be to refinance.
Real Property Capital was able to secure a $17.5MM bridge loan, but unfortunately the 6-month extension had expired before the loan closed. They needed more time to finalize the necessary legal work to close the loan.
THG negotiated another 30-day extension for a fee (to be applied at the closing). When that 30-day milestone came and went and the Servicer still had not been paid off, admittedly, we had a few sleepless nights. Finally, four business days later, the money was wired and no one was happier for the Borrower than THG and Real Property Capital.
MAKING THE GRADE
THG was able to achieve a DPO:
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Saving the Borrower 10+% of his total indebtedness, including past due interest, default interest, late fees, late charges and defeasance
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Extinguishing the Borrower's personal recourse liability, to his great relief
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Enabling the Borrower to retain the property and avoid foreclosure
