Multifamily / Student Housing

New England Student Housing | Multifamily Apartment and Condo

Juggling Negotiations. Two Loans. Two Special Servicers.

challenge

Originally, the CMBS Lender made two different loans, securitized in two different pools, to the Owner of a 600+ student housing portfolio. Weak market conditions and an overall recessive economy led to default, leaving the Borrower, an LLC Partnership, to deal with TWO Special Servicers, each with a unique agenda and tolerance for resolution. Additionally,

• The LLC’s managing partner had no additional equity to put into the project. His overall goal was to reduce his indebtedness on the properties and extricate himself from the burden of $30MM in loan obligations.

• The institutional equity partner was unwilling to invest new capital into the project.

Solution

Despite the complexity of the transactions and the players involved, The Henley Group rose to the challenge and became an integral part of the Borrower’s team, bringing the experience and skills to make a compelling deal that would benefit both the Borrower and each of the Special Servicers.

• We conducted a complete forensic audit of revenues and expenses for all the individual student housing units and utilized our financial modeling to forecast property values.

• Working with our Borrowers internal accounting team (as reports needed to be reviewed and vetted by the partnership), we presented comprehensive data to the Servicers to help them substantiate value.  

• Over the duration, we ensured various existing investors remained informed and aligned and were not chasing individual outcomes.

• The Henley Group worked diligently to persuade each Special Servicer to agree to aggressive discounted pay-offs and allow reasonable equity capital to be returned to the Borrower.

• We committed to ensure neither Servicer felt the other was getting a better financial deal and the sale of the properties post-discounted pay-offs was fairly priced to prevent a breach of their fiduciary responsibility to the bondholders of the pool.

outcome

The Special Servicers agreed to nearly a 67% pay-off; the investor enjoyed a deal with sufficient return on their investment and our client, the Borrower, was thrilled with the advice, diligence, and successful outcome The Henley Group orchestrated. We had the added benefit of strengthening our relationship with the Servicers and were proud to gain the trust of all stakeholders involved.

footnote

At the time, there was negative publicity from another, unrelated, CMBS loan, which prompted the Lender to require our client to execute an updated, more onerous version of a Borrower Disclosure. Put forth by the Lender just days prior to the closing, the new, significantly expanded borrower certification flummoxed the sponsors and could have easily derailed the deal. David’s composure, financial savvy, and expert facilitation enabled all parties to continue to communicate while determining how to box the risk satisfactorily for the Borrower.

Family Thrives: Consensus is Key to Retaining Ownership.

challenge

Multi-generational owners of an apartment and condominium portfolio can no longer service their debt. 

• A glut of existing units in the market, new construction, low demand, and an underfunded deferred maintenance budget created a drag on the property.

• Vacancy rates continued unabated while infrastructure repairs mounted.

• The property’s value deteriorated and the balance sheet was constrained, making it impossible for the Borrower to service the debt.

Solution

The Henley Group was clear that tantamount to success was reaching consensus about the portfolio’s value and this would be a family affair.

• We visited the client properties, as we do with each and every engagement.

• We dedicated countless hours and in-person meetings to get to truly understand the needs and motivations of each of the family members, ease their fears, align the group, and uncover nuances in the current loan and property situation. 

• As Borrowers who use balance sheet debt to fund their property, CMBS loans were foreign and confusing territory. Our goal was to help better educate these multi-generational stakeholders about how CMBS lenders think and behave.

• The Henley Group understood the Lender would require additional equity to restructure.

outcome

The Henley Group restructured the portfolio with a 40% discounted payoff and collaborated with the Borrower to structure the new equity. The apartments and fractured condominiums were refinanced and the multi-generational family was able to retain majority ownership and management of the portfolio.