Industrial / Mixed-Use

Southeast Industrial Park | Southwest Mixed-Use | Light Manufacturing | New York Single-Tenant

A balloon payment blows up. Swift action and strong relationships bring it down.

CHALLENGE

A seasoned property owner with multiple industrial buildings in a Southeast industrial park faced a significant and unexpected challenge. When the Borrower secured new financing, they were completely blindsided by an issue with their CMBS loan. Here’s what happened:

• The Borrower required a payoff statement from their Lender to close the deal for the new financing

• The closing date for the new financing did NOT align with the balloon maturity date.

• A default fee of nearly half a million dollars on the CMBS loan was triggered.

• The loan servicer imposed this late charge just two days before the loan maturity date.

• The Borrower was in a precarious position, considering litigation due to what was deemed last-minute and unfair charges.

Solution

The property owner engaged The Henley Group (THG) for expertise in navigating this critical and time-sensitive situation. With the clock ticking and the new financing hanging in the balance, THG swiftly mobilized the team and moved to determine a viable resolution. Recognizing the high stakes and potential repercussions of significant financial losses, THG immediately leveraged its strong relationships with the master and special servicers, including the head of assessment management, and began negotiations. The team worked diligently and quickly to find an intelligent solution to protect the new financing, which was at risk of disappearing.

OUTCOME

Through intensive discussions and skillful negotiations, THG achieved a positive outcome for the client. The default late charge, originally set at $500,000, was successfully reduced to $100,000. This not only represented substantial cost savings for the Borrower but also facilitated a timely closing within 14 days. The resolution allowed the property owner to sidestep the potential for protracted and expensive legal battles, preserving their financial stability and the integrity of the new financing arrangement.

By intervening and swiftly responding, The Henley Group’s CMBS expertise, Servicer relationships, and strategic negotiations resolved a complex situation, ultimately safeguarding the interests of the Borrower and ensuring the successful execution of a critical transaction.

Caught between a rock and a hard place. Strategy and negotiation pay off.

CHALLENGE

It’s 2006. A Texas-based family office made a strategic investment by purchasing a 90,000-square-foot industrial mixed-use property. With years of wild economic gyrations and real estate market turbulence property cash flow had become inconsistent and unpredictable. The “debt fund” loan that backs a CRE-CLO (Commercial Real Estate Collateralized Loan Obligation) loan maturity date was looming, but the Borrower was in an untenable and complicated position, nearing default by not being able to pay off the note per the terms of the loan.

SOLUTION

Facing the financial challenges and potential consequences of default, the family office sought the expertise of The Henley Group (THG). THG recognized the need for a comprehensive strategic approach and the importance of deciphering the needs and requirements of each stakeholder. Through patient and extensive negotiations with the Lender, THG successfully secured a Discounted Payoff (DPO), landing a $1.2 million discount on the original $9.5 million CRE-CLO loan.

The DPO not only provided financial relief to the Borrower but also paved the way for a more manageable resolution. The terms of the DPO were carefully structured to ensure both parties in the deal were satisfied, balancing the financial considerations of the Lender with the Borrower's capacity to settle the debt.

OUTCOME

The Henley Group negotiated a DPO that was highly favorable on both sides of the table. The Lender approved a nearly 87% payoff, recognizing the extreme economic challenges faced by the Borrower, and the family office was able to retire the debt at a reduced cost, mitigating potential long-term financial strain.

The family office expressed deep satisfaction with the outcome. Not only had they achieved a significant discount on the original loan amount that protected them from adverse consequences, but the DPO yielded a favorable return on their investment.

THG’s strategic financial negotiations and successful collaboration with the family office and the Lender exemplify how a well-executed financial strategy can address timely challenges, provide a viable solution, and yield positive outcomes for all parties involved in a complex real estate transaction.

Leveraging Our Elite CMBS Network to Help the Over-Leveraged.

challenge

The Owner of a multifaceted 153,853 square foot warehouse was over-leveraged at the time of financing. The LTV had drastically deteriorated and with the loan reaching maturity, our client could not pay off the CMBS loan. Obstacles abounded, starting with the players:

• The Lender consistently avoided discussions toward any possible resolution.

• The Borrower was extremely doubtful about The Henley Group’s assessment of the Lender’s motivation and the feasibility of our recommended solution.

Solution

The Henley Group needed to convince the Lender to accept a discounted payoff and write down the asset immediately on a cash flow positive loan.

• We took the extra time to analyze the Borrower’s loan pool and to identify individual loans that had not been securitized and were being held on the Lender’s balance sheet.  

• David deduced that the Lender would be willing to take an immediate loss on the loan based on their position within the pool and the deterioration of their collateral. 

• Our analytics indicated that the Lender’s highest NPV was a 40% - 45% discounted payoff with the Borrower.  

• Leveraging our extensive peer network, we called upon some outstanding colleagues at a well-known Special Servicer to help come to a resolution. 

outcome

The Borrower turned from non-believer to believer. The Henley Group negotiated a 44% discounted payoff and the Borrower refinanced the property at a substantially reduced basis through a local bank. We are grateful to our prestigious network, nurtured over many decades, as it was, and will always be, vital to achieving success. Our tenacity to leave no stone unturned certainly helped make the difference as well.

Special Servicer: Neither a Borrower Nor a Lender Be? Well Maybe.

challenge

Fedex was the only tenant in a New York industrial property. When they vacated the space, the Borrower was faced with zero cash flow and a building that would sit dark for 9+ months. Other issues compounded the situation:

• The Lender racked up late fees and default interest on a loan which had matured over 2 1/2 years earlier.

• The Lender/Special Servicer held significant Borrower reserves, which were inaccessible.

• The tenant market remained exceptionally sparse.

• Build-out and capital upgrades to accommodate any new tenant would be extremely expensive since the industrial space had been customized to Fedex’s specs.

• The owner did not have any cash on hand.

Solution

Innovative thinking combined with detailed TI/LC and ROI analytics paved the way for The Henley Group’s resolution. 

• After working with local and national leasing brokers and independently confirming the Borrower’s numbers, we approached the Special Servicer with a complicated proposal that was well-beyond their comfort zone.

• While Special Servicers do not typically administer frequent draws on aggressive construction schedules due to the additional effort and requirements, turning the Special Servicer into a quasi-construction Lender would resolve the problem. Not an easy idea to sell.

• With pure grit and doggedness, data in hand, The Henley Group brought a creative and mutually beneficial solution to the table for the Borrower and Servicer.

outcome

Ultimately, the Lender was paid off. The Owner retained the building and was able to get significant relief on late fees and default charges, while obtaining construction monies, funded from reserves, during a default situation. In essence, The Henley Group re-engineered the role of the Special Servicer as a construction lender willing to advance construction funds as tenant improvements were made. We believe and know, when handled correctly, that it’s possible to cooperate with Servicers to achieve the best outcome for all stakeholders.