Stephen grant, Game Overe...or... Overtime

1. Game Over…Or…
Overtime
Steve Grant-Founding Partner, Property Recovery Advisors
Ann Hambly-Co-Chief Executive Officer/Founder
1st Service Solutions

2. Game Over…Or…Overtime

3.  Who?
Steve Grant-Modified 54 loans in the last 44 months with
face amounts totaling $1.37 Billion. Raised $37.2 million in
new capital to achieve terms of modification proposals with
lenders.
Developing a Script for success…
Game Over…Or…Overtime

4.  Who and Why?
 On-Book Lenders
 Banks-Recourse and Non-recourse
 Insurance Companies
 Pension Fund Advisors and REMICs
 Reasons for Engagement
 Tenant Move out or Bankruptcy
 General Cash Flow Declines with renewals at lower market rental rates
 Unfunded or Underfunded Leasing Reserves
 Loan Maturity
 Covenant Default (Debt coverage violations, Resizing issues, Key
tenant loss)
 Material Change in Financial Condition Related to Guarantees
Game Over…Or…Overtime

5.  How?
 The Set Up and Evaluation
 Review of all major documents and contact data bases
 Cash Flow Analysis and Value Estimates
 Initial contact with lenders and other lien holders
 The goal is to create an advocate within the lender to present the
case for modification
 The Script incorporating the Strategy
 A/B Note Structure
 Forbearance
 Deleveraging
 Discounted Pay off
 Bank Deposits/Annuity Purchases
Game Over…Or…Overtime

6.  What?
 Industrial
 State of the Art Buildings not likely candidates
 Multi-tenant, low ceiling heights, specialty improvements, non-
conforming locations are the likely Industrial property candidates
 Office
 Most office property types are candidates
 Retail
 Most retail property types are candidates
 Investment Size
 Loans from $2 to $10 million take longer to resolve, but the
resolutions are more attractive
 Larger loans $25 million plus require a new equity strategy
Game Over…Or…Overtime

7.  Case Study #1
 112,000 SF Shopping Center Anchored by Food Maxx and Walgreens
 Food Maxx Moves out and triggers Co-tenancy move out option for Walgreens
 Covenant Violation requiring immediate cash management agreement (CMA) and
rebalancing.
 Loan is $14.5 M at 6.47% and 30 year am. And joint and several recourse to 6 partners.
 2010 cash flow of $327,000 is a 1.38 DCR
 Rebalance notice requires $3.9 Million pay down so loan maintains a 1.1 DCR on
current NOI.
 Solution-Borrower pays for leasing costs on replacement tenant-Mi Pueblo
($585,000) and Famsa USA ($218,000). Loan enters a 24 month forbearance
period with a CMA in place which allows interest to accrue at a 4.5% rate during
the free rent period of the two replacement tenants. Two guarantors are
released.
Game Over…Or…Overtime

8.  Case Study #2
 Three cross defaulted/cross collateralized self storage facilities. 24 joint and
several guarantors. Lawsuit against developer.
 Loan is a construction/mini-perm of $23.6 Million with a 6.42% interest rate
and an interest only period expiring. Conditions relating to income
achievement have not been met and loan is due.
 Complete reconstitution of borrower including removal of managing
member. Exiting investors pay loan down $3.2 Million to be released
from the guaranty. 6 remaining investors restate guarantees. Purchase
$500,000 in annuity product from insurance company.
 Loan Maturity date extended to 2017/interest rate is reduced to 3.5%
for two years-increasing 0.5% every year thereafter interest only.
Each loan now stands on its own with allocated balances.
Game Over…Or…Overtime