Create Value,
Maximize Recovery
Bridge gaps between lenders and their distressed
assets using your connections
Despite the somewhat-favorable nvironment to hold loan as- sets, lenders still require a stra-
tegic plan after they extend borrowers’
loans. They must find solutions to work
out their ballooning real estate owned
properties and nonperforming-loan
portfolios while also minimizing risk
and creating opportunity for recovery.
Commercial mortgage brokers who
understand the complete capital stack
and have real-time knowledge can as-
sist lenders and borrowers. Brokers
first must understand the problems
that lenders face.
There is a continued gap in the bid-
ask spread for note sales and asset
sales. Many buyers are not consider-
ing sellers’ needs beyond their own
internal-rate-of-return expectations. In
addition, banks are not seeing the valu-
ations they need to sell and are unwill-
ing to take the hit to regulatory capital.
They also have assets that require a
strategy to preserve and increase prop-
erties’ value.
Stay on the
Nonrecourse Course
Borrowers must avoid certain actions
after a default to avoid recourse liability
many commercial mortgage bor-
rowers seeking a loan workout or re-
structuring feel like they are practically
forced to engage in strategic default —
i.e., to stop making their loan payments
to get their lender’s or special servicer’s
attention. But an unintended circum-
stance follows: After a lender-declared
default, borrowers no longer operate
the property solely for their benefit but
also for the lender, which may foreclose
if a workout fails.
Borrowers have an implied, if not ex-
plicit, duty to continue to own and oper-
ate the secured property the same as
or better than they did before default.
This concept gets is teeth from what are
known as bad-boy carve-outs, which are
loan-document provisions that provide
exceptions to nonrecourse liability.
Commercial mortgage brokers as-
sisting in loan workouts or refinancing
defaulted loans must understand what
borrowers can and can’t do in the post-
default period.
By Paul Daneshrad, CEO, and
Aden Kun, Director of business development
StarPoint Asset Solutions
principal’s perspective in managing
and creating value for the asset. In this
dynamic real estate environment, lend-
ers require hands-on property manage-
ment and additional capital. Brokers,
as advisers, can help them evaluate
options, including note sales, partici-
pations and other venture agreements.
Brokers who have lender, capital and
operator relationships can help bridge
the identified gaps. For strategic note
sales, for instance, brokers can help ar-
range the financing and provide addi-
tional support during the due-diligence
process. They also can help negoti-
ate the selling bank’s financing terms,
which often include nonrecourse provi-
sions, fixed rates and amortization.
For properties that require hands-on
management, brokers can help align
operators with strong property-manage-
ment expertise and operating platforms
to manage and implement a value-add
business plan. These resources are
critical because many lenders’ special-
assets departments are moving into
uncharted territory working as the asset
manager and the property manager.
Moreover, brokers can help identify
companies that have a successful track
condemnation proceeds properly to
restore or repair the property;
Paul Daneshrad is CEO of StarPoint Asset
Solutions, a division of Beverly Hills,
Calif.-based StarPoint Properties. Aden
Kun is the company’s director of business
development. Starpoint Asset Solutions is
a fully integrated company specializing in
the rehabilitation, turnaround and manage-
ment of distressed and undermanaged real
estate assets. The team has turned around
more than 85 distressed and undervalued
assets. Reach Daneshrad at (310) 247-0550,
ext. 200, or paul@starpointproperties.com.
Reach Kun at (310) 247-0550 or adenk@
starpointproperties.com.
By Scott Silver
Attorney
Silver Law Offices Inc.
diversion of rental income.” Remember,
the loan’s collateral is not only the real
estate but also the cash in the borrow-
ers’ bank accounts. To be safe, borrow-
ers should not make any distributions to
investors post-default.
Several recent cases indicate a trend
of courts enforcing strict compliance with
loan covenants and full enforcement
of recourse liability based on breach of
nonrecourse carve-out and springing-re-
course provisions. Accordingly, mortgage
brokers should advise their borrowers to
dust off their loan documents and read
them carefully. It will be better to err on
the side of overcaution. •
Note: This article was written for educational
and informational purposes only and should not
be construed as legal advice. Advise your clients
to consult an attorney to determine what is legal
and appropriate for their specific situation.
Scott Silver is founding attorney of the Los
Angeles-based law firm Silver Law Offices
Inc. ( www.silverlawla.com). Silver focuses
solely on commercial real estate transac-
tions throughout the southwestern United
States, including financing, development,
sale, leasing, joint venture and all other
aspects of retail, office, industrial and
multifamily properties. Reach him at scott@
silverlawla.com or (310) 684-3611.
