In a commercial real estate world that appears to be unraveling, the headlines tell only part of the story.
For much of the past six months, commercial real estate’s beleaguered office sector has been dogged by negative news, with some of the industry’s most prestigious names either struggling to refinance formerly performing properties, defaulting on commercial mortgage-backed securities (CMBS) loans worth hundreds of millions of dollars, or attempting to hand back the keys to underwater office buildings to lenders.
Some of this might be a game of chicken between lender and borrower: renegotiate my terms or take my asset. And, indeed, that seems to be the way it’s playing out.
Michael Cohen, managing partner at Brighton Capital Advisors in Charlotte, has over 25 years of experience in restructurings. He broke down the path an underwater balance sheet loan usually takes:
“The first thing that happens if a property goes into default — usually triggered by a missed loan payment — is the lender sends a note to the borrower stating that they’re in default. If the borrower doesn’t respond, they send a foreclosure notice to begin the dual tracking, when a lender pursues a foreclosure while simultaneously exploring other resolutions such as a loan modification or a sale,” explained Cohen. “If the lender can see the borrower isn’t running the property correctly, they’ll put in a receiver — a third party elected by the bank — to oversee it temporarily.”
