ULI UK Webinar Recap: Future of Housing
Read a summary of the ULI UK webinar “Future of Housing”, by ULI Member Sorrel Pompert Robertson (Blackstock PR).
Dealing with Distress in Real Estate Finance
On Monday 29 June, Partha Pal and Ian Jack, shareholders at Greenberg Traurig, hosted ULI UK’s first virtual Masterclass. The event was fully subscribed and attended by 30 ULI UK Young Leader members.
As an introduction, Partha and Ian discussed a central principle of real estate financing: security. Whilst in most cases the lender will have security over the assets being financed, enforcing this security does not come without cost and consequence. Firstly, a lender enforcing security must be capable of taking control of the assets and avoid making matters worse. Secondly, selling the assets at a bad price could adversely affect the value of similar assets that they hold security over, and thirdly, unless the situation can be directly attributed to the borrower, enforcement may affect the lender’s reputation in the market.
Enforcing security in a distressed situation, therefore, is often not the first or best resolution for either the lender or borrower. So, what other resolutions are available? To cure the distress, Partha and Ian first sought to understand its causes and symptoms:
Partha and Ian categorise distress into three categories:
Distress can manifest itself in several ways. However, often the most effective way to recognise the symptoms is through the obligations of a borrower. These can include:
By recognising the symptoms and assessing the causes, solutions can be found. Consensual cures to the above could be as follows:
For any such consensual cure to be found, there must be a level of alignment between borrower and lender. Finding this alignment can be harder still where more parties are involved (e.g. contractors, forward-funders, mezzanine providers). Otherwise, non-consensual approaches can be considered. Non-consensual approaches commonly include: cash trapping, replacing asset managers, appointing receivers, appointing administrators and schemes of arrangement.
Overall, it was an enlightening discussion with Young Leaders able to ask questions of the experts, Partha and Ian, as well as network with each other.