10 Tips for Negotiating a Loan Restructuring

The effects of COVID-19 continue to unfold on a daily basis.  For commercial real estate owners, the long term implications of this pandemic cannot yet be fully assessed, especially since the resulting economic recession has only recently been confirmed and the public health uncertainties resulting from COVID-19 continue to ensue.  Since commercial real estate is a leverage business, many owners may need to restructure the loans secured by their properties to achieve more achievable economic terms and to avoid loan defaults, foreclosures and the loss of their properties. Here are ten key considerations to guide you generally in pursuing loan restructuring transactions with your lenders. 

Identify the entire business problem

Identify the root causes of your property’s distress and why the property is facing challenges in complying with the requirements of your loan.  One obvious cause is a borrower’s impaired ability to make debt service payments due to the severe and abrupt decline in its rental revenue due to the pandemic, the impact of “shelter in place” orders, ongoing business failures and increasing unemployment numbers.  What other problems at or affecting your property need to be addressed through a loan workout (such as immediately needed repairs or structural defects that have been deferred due to the absence of necessary capital)? Your goal in this analysis is to develop a complete picture of what’s wrong so that in restructuring the loan, all looming issues can be addressed in a comprehensive manner, enabling the property to get back on track.

Know your lender

Lenders will approach loan restructuring requests differently depending on whether they are private lenders, CMBS lenders, government sponsored enterprises, life insurance companies, commercial banks or other types of regulated lending institutions.  Private lenders are typically more willing and able to be creative and flexible in restructuring loans than are traditional institutional lenders constrained by regulatory and financial reporting requirements.  CMBS lenders, i.e., special servicers, tend to be the least flexible in restructuring loans.  Understand your lender’s likely approach to a workout transaction and factor these considerations into your loan workout proposal.  

Get organized and be prepared

Do your homework and get organized before you approach your lender.  This preparation should at a minimum include: