Property owners and attorneys: The case for hiring a loan advisor

Interview with David Tesler, Esq., Real Diligence, LLC and Sam Goldwasser, Blue Coast Capital Partners Distressed commercial real estate property is on the rise. Vacancies have been increasing in retail centers, office buildings, apartment rentals, and warehouses across the country. As a result, many properties no longer generate sufficient income to cover the debt service. With a growing number of commercial property owners now staring foreclosure in the face, many are seeking a loan modification...or risk losing their full capital investment and opportunity cost in their property. Owners are now tasked with demonstrating and persuading their lender that a loan workout for their property is in the lender's best interest. While some property owners are arguing the case for a loan workout themselves and others have turned to their real estate attorney for help, such efforts are producing marginal results. That is why more and more property owners and their attorneys are engaging a third party for assistance. These experts are a unique breed: a mixture of financial analyst, commercial real estate counselor, negotiator, and mediator. According to David Tesler, Esq., CEO of Real Diligence, LLC and Sam Goldwasser, Blue Coast Capital Partners, the do-it-yourself approach to loan workouts is a critical error that typically produces negligible - and sometimes dire - results. Instead, they recommend using a loan advisor, who possesses four qualities that can significantly increase the likelihood of success: expertise, perspective/objectivity, experience and resources. Expertise According to Goldwasser, a loan advisor possesses a set of honed skills that property owners, real estate attorneys and their related advisors simply do not have "A loan advisor has a keener insight into the situation," said Goldwasser. Part of the expertise is in their ability to offer creative solutions. "With distressed commercial assets, the answer is usually not a vanilla answer," said Tesler. "There are back door solutions that most people don't consider. Because of our understanding of the market and industry connections, we can propose options and make things work that are out-of-the-box and unique for that particular property's circumstances." Perspective and Objectivity A loan advisor also possesses an emotional distance from the transaction which allows them to dispassionately assess the situation. This helps in a number of ways. First, because loan advisors are not emotionally invested, they can listen, step back and then assess the situation. Also, because education is part of the process, a loan advisor is uniquely positioned to objectively identify and advocate the best solution. According to Goldwasser, "Because we are independent and have an emotional distance from the property, we are able to air out issues more openly." Experience Loan advisors also bring a wealth of experience to the table. According to Tesler, "Simply put, loan workouts is what a loan advisor does all day." The most reputable firms have handled hundreds of loan workouts. Like most specialists, it is the repetition and industry contacts generated over time which hones their skills to the level of mastery. But the best loan advisors do not just advise; they also analyze. "In the case of real diligence, we not only gain a full legal understanding, but also get an on-the-ground financial understanding of the asset," said Tesler. "We gather and analyze the data, and then use that data to gain credibility with the lender during the negotiation." Resources Finally, loan advisors have the resources that neither property owners nor their real estate attorneys possess. Over the years, loan advisors develop a wealth of industry connections and can leverage those relationships to have key conversations more quickly, efficiently and cordially. "We can reach a higher level person within the lending institution because of who we are than if the borrower or attorney calls," said Tesler. While the property owner's attorney is a valuable part of the loan workout process, the attorney's efforts need to be coordinated as part of an overarching strategy that should be worked out by the third party loan advisor. Attorneys and real estate firms have transactional expertise, but not the complete skill set to handle a loan workout. The question to ask is: when was the last time your attorney did a loan workout?" Experts agree that property owners and their attorneys should join forces with a qualified loan advisor to find a remedy for a distressed commercial asset, or risk losing the property altogether. Even with tight cash flow, it makes the best financial sense for a distressed property owner to spend the money to engage a loan advisor.