Borrowers Get Tips on Extending, Not Pretending

"Bring reasons, not excuses," was the advice from attorney Andrea Ascher, a partner with Proskauer Rose in New York City. Ascher explained that lenders, in order to have productive discussions with borrowers about restructuring or extending loans, don't just want to hear borrowers blame the economy and circumstances outside of their control for their underperforming loans―they want to hear a plan for improving performance at the property as part of a negotiation about how to bring the loan back into compliance. "Lenders want to see borrowers who come in and are not pretending, but who have a plan for correcting" the situation, Ascher said.

Ascher and the other panelists said, in essence, that borrowers must be thoroughly informed about all operational facets of a property when they meet with borrowers, and they must show that they seriously believe the property has upside potential and are not just pretending in order to extend. The panelists suggested that borrowers should be able to tell lenders, for example, if the shopping center's main problem is the lack of an anchor and, if so, what plan the borrower has for finding another anchor, as well as whether the property needs deferred maintenance and how much money might be required for future tenant improvements.

Panel moderator Oscar Rivera―managing shareholder at the law firm of Siegfried, Rivera, Lerner, De La Torre & Sobel in Plantation, FL, pointed out that lenders will want to know detailed information such as current year income and expenses, deferred maintenance costs, tenant allowances, rent schedules, historical occupancy and sales volumes, as well as future expected capital expenditures required for the property.

Brooks Benjamin, Irvine, CA-based vice president in the Asset REcovery Group at Key Bank, observed that, "The lender is relying on the developer to be the expert on the project." Lenders have the loan documents and financial information about a property, Benjamin explained, but they need borrowers to show that they are capable of being "a good steward of the property."

Another point Ascher noted was that, for joint ventures, the partners all need to be in agreement on what they would like to do before they meet with the lender. "If you don't have your family matters worked out, don't expect your lender to work them out for you," she said.

Panelist James Kaplan, managing principal of Glenview, IL-based development firm James Kaplan Cos. pointed out that lenders these days are often taking a keener interest in their borrowers' projects than they might have in the earlier days of the financial and economic downturn. Kaplan suggested that borrowers should have detailed operational information ready to email to lenders if necessary. "It helps with negotiations," he said.

According to panelist Manny de Zarraga, executive managing director with Holliday Fenoglio Fowler in Coral Gables, FL, one reason that banks often have a keener interest in how their borrowers' properties are performing these days is that they are coming under increasing scrutiny from the FDIC. "The FDIC wants lenders to work with borrowers because the FDIC doesn't want to have to take over more banks," Zarraga said.

Following the discussion about how to restructure and extend loans, the panelists offered some observations on what borrowers can do when they can't reach an agreement to renegotiate or extend a loan. The deed-in-lieu process is "extremely state-specific," Ascher pointed out, and Rivera noted that the process often involves "significant tax issues that are beyond the scope of this session." Ascher advised, borrowers should have clear title to the property, or a plan for clearing the title of encumbrances like mechanics' liens, before pursuing a deed-in-lieu.