These testimonials were sent by my friend Phil:
The commercial workout process is a complicated and multifaceted endeavor requiring expertise in numerous fields. Breakwater successfully merges our knowledge base and experience in law, banking, tax, and real estate to generate a synergistic approach to client solutions. Our years of experience encompass multiple asset classes, financial institutions, and loan products.
Please review the posted testimonials for a brief insight into the success we have brought our clients. Due to the confidential nature of the industry the disclosure of information is limited.
|Case History “A” – High End Condo Development
Our client owned a high-end four (4) unit condo construction project near the beach in San Diego, CA. The bank began experiencing problems, and as a result slowed down the funding of the client’s construction loan. The loan matured in March 2009 with only $2.4MM out of $3.5MM having been advanced to the client. The bank refused to fund the balance of the construction loan and threatened to execute on the personal guarantees.
We completed a legal, bankruptcy, and economic analyses of both the asset and the guarantors. Our primary recommendation was to cram-down the loan principal with the current bank and bring in a ‘white-knight’ investor to acquire the project at a substantial discount. However, as a matter of professional reputation the guarantor simply wanted to finish the project.
During the workout, we discovered several breach of contract and tort claims against the lender. The bank eventually recognized its conduct had voided the guarantees and created significant exposure. In addition, we demonstrated the asset’ s value would further deteriorate in bankruptcy, making a repossession uneconomical. The bank agreed to extend the loan for 1 year, advance the money to complete the project and reduce the interest rate to just 2%.
The client was pleased that they could finish the project successfully and honor the wishes of the guarantor.
|Case History “B” – Condo Development
We represented a developer on a completed condo project. The owner had been in negotiations with the bank for over eight (8) months attempting to short sale the asset. The client had a buyer willing to purchase the project for $4.0MM, which was approximately $1.8MM below the note value. However, the bank was only willing to discount the note $750K and was not willing to relinquish the personal guarantee, which was full recourse.
After a thorough legal and economic analysis, it was obvious that the client had significant litigation claims. Collecting on the personal guarantee would be problematic and bankruptcy would further diminish the value. Within two weeks after the initial meeting with the lender they agreed to a full release and allowed the project to be sold to the ‘white knight’ for $4MM.
Even though the client lost their equity in the deal they were relieved to be out of a project which may have dragged on – clouding the rest of their performing projects. Often, purging a deal strengthens a client’s portfolio.
|Case History “C” – Mixed Use Retail
A large and successful Southern Californian developer attempted to renegotiate the terms of their loan with a CMBS special servicer. The project was a finished state of-the-art mixed-use development in Southern California. The client wanted a term extension and a release from the LTV covenants.
Proceeding thorough legal, bankruptcy and economic analyses of both the asset and client, it was obvious to us that the litigation and bankruptcy leverage points were unsatisfactory. We chose to concentrate on an economic approach.
Negotiations often take months. However, in this case, we completed negotiations in less than 60 days. We were able to get a 4-year extension, and a 200 basis point interest rate reduction – saving the client $1.4mm over the life of the loan.
Oftentimes, it is just a matter of having strong representation along with a couple leverage points to convince a lender to concede to reasonable terms.
|Case History “D” – Partially Developed Land – Entitlement (Multifamily/Commercial Zoning)
In February 2007 the asset was appraised at $6.8MM and the developer took out a $4.7MM loan with a full recourse personal guarantee. The property was adjacent to several proposed public and private projects which would create hundreds of new jobs. As the Phoenix economy collapsed and the proposed projects were cancelled, the vacant land declined in value by 80%.
We completed a thorough legal, bankruptcy and economic analyses of both the asset and the client. The legal leverage points were moderate at best. However, when we combined the legal, bankruptcy, and economic strategies we demonstrated that the bank’ s best strategy was a quick liquidation in order to avoid a continuing drop in asset values compounded by holding costs. Given a potential bankruptcy, and collectability problems with the personal guarantee, the bank was eager to purge this loan from its books.
We brought in a ‘ white knight’ and sold the property for approximately $650k. The relationship between the ‘ white knight’ and the client was disclosed in the documentation. The white knight purchased the project and re-sold it for a 100% profit.
The bank was rid of a troublesome asset, the client quickly resolved a potentially long-term problem and a related party partook in a profitable deal.
|Case History “E” – Multifamily – 16 Units, Phoenix AZ
The asset’ s value had fallen from $1.5mm when the loan was made to around $400K. The asset had a negative NOI and could not cash flow even if the bank authorized a zero percent (0%) interest rate.
Even though the client had some limited assets, we were able to demonstrate to the bank they could not collect, and the best option for the bank was to repossess the project immediately – and release the client from the PG.
The bank took the property back, salvaged some value and the client avoided personal bankruptcy – protecting the rest of their assets. All of this took place in less than 90 days.
Even though we received this case just prior to the loan maturity deadline, we strategically played the few remaining cards to achieve a good resolution for the client.
|Case History “F” – Corporate Housing Community
Our client acquired a 36 unit corporate housing community in October, 2007 and placed a twoyear interest-only loan at Prime Rate minus Â¼ with a 7.5% floor and a 50% personal guarantee. Nearing loan maturity in late November of 2009, the bank denied long-term financing due to an LTV below 80%. To avoid a new property appraisal, the bank agreed to a six month loan extension at 6% IO and a 100% personal guarantee. As cap rates continued to rise and market rental rates decreased, our clients were rightfully hesitant to increase their liability to 100% for only a six month extension.
Once engaged, our team performed thorough economic, financial and legal analyses of the both the asset and client.
During negotiations, we convinced the bank they did not have the expertise to operate this asset as a corporate housing project, and their best option was to keep the clients in the deal. The bank reversed course and engaged in more realistic negotiations. The bank agreed to waive the $240K of back interest and keep the guarantee at 50%. The clients were most pleased with our ability to manage their liability, maintain the 50% personal guarantees and keep them in their asset.