RCA in the commercial property press:

Underwater Owners Engage Third-Party Firms to Hold on to Properties

San Francisco Chronicle reports: When owners of commercial property find themselves underwater on the financing backing their holdings, they often must negotiate directly with their lender in order to extend loan terms or reduce the outstanding balance. However, with so many owners currently in or nearing a state of distress on their loans, third-party “workout companies” have sprung up to work with lenders and owners to renegotiate terms and reduce debt loads so that both sides of an agreement can avoid legal proceedings such as bankruptcy and foreclosure.

Regarding the rise of these types of financial service companies, Real Capital Analytics’ (RCA) Ben Carlos Thypin told the San Francisco Chronicle that they can “…definitely play a useful role in the services they provide and also by being a third party…Banks have to demonstrate to shareholders and regulators that they're getting market value (for soured real estate investments). Having a third party involved lends credibility to whatever amounts they're able to recover." Demand for these firm’s services will likely continue to grow, as RCA has tracked over $180.0 billion in commercial loans classified as “in default” during the first quarter of 2011.

The article used a local Bay Area example to discuss the role these workout companies are playing in the resolution or restructuring of distressed commercial properties in the US. Loans backing Peacock Gap, a country club just north of San Francisco in San Rafael, teetered on the edge of default when the owners were unable to continue servicing their loans with existing revenue. After making no headway with their lender, they turned to Breakwater Equity to negotiate with the bank directly and workout a new agreement.

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Posted by: Nina Turner

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