Discounted Payoff
Property: $7 Million Class D Multi-Family in Texas
Problem: The loan was transferred to special servicing due to cash flow issues related to declining rents and increased operating expenses. Additionally, the property was in very poor condition, with significant deferred maintenance related to the foundation and plumbing system. The city penalized the borrower for the condition of the property and required significant repairs to be completed (in excess of $500k); otherwise the borrower would have been forced to pay hefty fines. Due to these city violations, the lender threatened to pursue the borrower for waste.
Solution: The 1st Service team faced significant challenges when negotiating on the behalf of the borrower due to the lender’s pursuit of recourse related to the declining condition of the collateral. The lender forced the note into a sealed bid note sale, but 1st Service was successful in its attempts to remove the loan from the sale, which opened the door for the borrower. The final result was the borrower buying into the deal at a figure that allowed him room to remediate the significant deferred maintenance items and still make a profit at the end of the day.