Pre-Default Timeline: The Importance of Anticipating Your Needs

18th June 2014 · Comments Off

There are a handful of circumstances in which a property Owner might find themselves. These circumstances set in motion a nearly unstoppable chain of events that inevitably necessitate communication with a Servicer in the ensuing days, weeks, and months.

Circumstances

  • Cash flow issues
  • Tenant lease expiration(s) and vacancies
  • Tenant improvement needs
  • Property Improvement Plan (PIP) money required for renovation (Hotel Owners)
  • Upcoming Maturity with no take-out financing

What to Do: Early engagement of The Henley Group (6 to 12 months prior to issue)

When a loan has not yet defaulted

A loan that is pre-default needs to be transferred from the Master Servicer to the Special Servicer, which entails development of a strategic “hardship letter.”

  • The hardship letter details the property issues and outlines the Owner’s approach to solving them, including a viable business and financial model.
  • Letter must make a cogent argument that quantifies and qualifies the hardship.
  • Letter must be crafted to meet the requirements for one of the Servicer’s approved “hardship categories.” We can target these “requirements” based on our knowledge of the Servicer’s current situation and our past experience with that particular Servicer.

Why a letter? Because usually a loan that passes to the Special Servicer is already in default or close to it. Therefore, to bypass common practice, the Master Servicer must be presented with a very persuasive reason to ask the Special Servicer to intervene before default.

Can an Owner do this themselves and, is it worth their time and investment? We know Owner who have successfully navigated the rough waters of a successful negotiation. This, with many months of their own time invested. On the other hand, we have been engaged by otherOwner who have spent just as many frustrating months failing to capture the Special Servicer’s attention, unable to make an argument for their property’s situation. At the time of The Henley Group’s engagement our immediate strategy is to re-plot the course of communication with the Servicer, familiarizing them with the complete picture of the Owner’s situation, all the contributing factors, and the presentation of a practical and realistic alternative.

This is just the first step in a complex web of communication and negotiation. Call us to find out how The Henley Group – a CMBS Workout Advisory and Borrower Advocate — can help you at the earliest possible moment. Early engagement can often lead to better outcomes. Contact us today

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