November 2014

DEAL OF THE MONTH

Retail Center in Texas

Matured Loan with unstable tenancy. Occupancy at the property fell significantly just prior to maturity, when a large tenant closed their doors and stopped paying rent. Although the value of the property was slightly above the loan amount, it was virtually impossible to refinance with the instability in the tenant base.

Result:  2 – Six Month Forbearance Terms


November Deal of the Month

Loan
$17 million

Originated
2003

Modification
Forbearance

 


Challenge

These specific set of facts are some of the most challenging: (1) property value at or slight above the loan amount, (2) unstable tenant base making it virtually impossible to refinance, and (3) large vacancy putting the debt service coverage ratio below breakeven.   They are most challenging because a discounted payoff is not necessarily warranted, it is difficult to get an extension when there is no clear exit strategy, and the borrower cannot get takeout financing.

Borrower Received

6 month forbearance terms

Solution

1st Service Solutions was able to negotiate two – six month forbearance terms, with the second term being executed at Borrowers sole discretion. The forbearance has allowed the borrower time to place a nationally known tenant into the vacant space, complete improvements at the property and enter into negotiations with another tenant to replace the “temporary” tenant.

The borrower has also begun negotiations with lenders to obtain take-out financing at market rates. The forbearance has allowed the time necessary to maximize the value of the property and seek better financing terms for take-out financing, without the long term cost of an extension.