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Commercial Real Estate Loan Workout and Loan Management Specialist
Case Studies



Case Study Number One:

 

Adirondack Camp Estate, Upper St.  Regis Lake, New York.........

Property was purchased at a New York State sale, with the intention of converting property to a hotel/resort complex.  After purchase was made in mid 1980’s with bank funding of 1.2 million dollars owner discovered deed restrictions and covenants that prohibited any changes or modifications to current use of property as a private residence. Consequently loan went into default.

Examine:  We reviewed the assets of the borrower.  We sent a team to assess the real estate and itemize the contents.  We were advised by the borrower that the property along with original furniture, artwork and fixtures were being safeguarded and maintained by a caretaker that he had hired.

Diagnose:  After multiple meetings with the borrower it was determined that loan would continue to be in default due to the borrower’s inability to pay.  We completed an itemized appraisal and established an all inclusive market ‘as is’ value of 2.6 million.

 

Prescribe:  We first took legal action against borrower by instituting foreclosure.  We then directed the bank to seek consent of borrower to enter into a Mortgagee In Possession, which he gave.  Our purpose was to liquidate the property and its contents in a timely manner so as to recoup losses. 

Cure:  Property was listed with a reputable New York City broker who was successful in selling and closing on the property and contents for 2.3 million dollars.  The bank recouped its principle along with interest, costs and fees. The borrower received the remaining funds.   

 

Case Study Number Two

Car Wash, Blackwood, New Jersey

Owner had his own franchise with 31 car washes located in Delaware, Pennsylvania and New Jersey. The mortgage on the Blackwood property was in default.  Attempts made by bank to resolve the debt were not successful. Borrower was consistently self-centered, arrogant, loud, foul mouthed and rude in his dealings with the local bank representative, attempting to intimidate the bank into lowering the mortgage and interest rate  due to lack of income.

Examine: I was given the case as regional team leader. In meeting with the owner I encountered the same attitude and resistance experienced by the local rep. Owner refused to pay and threatened to declare bankruptcy unless we gave forbearance acceptable to him claiming the banks have enough money. He also turned down my request for the books before storming out of our meeting.   I decided to visit the property to see the operation firsthand.   After observing for two hours I determined that the level of activity was very high with both carwash and detailing. I also noted that there was little competition in the area. 

Diagnose: I made the assumption that there were two sets of books being kept - one for cash and the other for credit. It followed that he was reporting only part of the income and using that number for his argument that the mortgage be reduced. I met with the owner a second time – again he threatened bankruptcy. I told him that we would arrange for his transportation to the bankruptcy court using a shuttle provided by our bank since that would afford us full disclosure on the books.  Needless to say he did not accept my offer and left the meeting still refusing to pay.

Prescribe: We filed foreclosure because he remained in default and was unwilling to negotiate with the bank or provide the information that was requested. The papers were served. We did not hear from the borrower until after a sheriff’s sale date had been set.

Cure: With his bluff called, the owner paid us in full including outstanding principal and interest along with legal and administrative fees.

 

 

Case Study Number Three

1055 Unit Senior Housing, Cape Cod, Massachusetts

The developer had purchased an approved 125 acre property with 2.5 million cash equity obtained through a limited partnership.  The approval was to build a senior complex for 55 year and older adults which included single family detached residences, town house clusters, four story assisted living facility, attached condominium units and a 35,000 square foot recreation complex with indoor pool, exercise center and game rooms. The borrowers received a 3.5 million site improvement and 5.4 million construction loan for a seven (7) phase project with a takeout mortgage with the same bank. After completing 35% of site work for first three phases and constructing three buildings for town house clusters the borrowers went into default.

Examine: Reviewing the application for the loan it was discovered that only three ‘file maps’ for the first three phases of the project had been provided.  A financial review of the limited partnership revealed that one of the major partners recently had declared bankruptcy.

Diagnose: Without the ‘file maps’ the additional approvals for four of the seven phases were put in jeopardy through changes in zoning. Also, because a major partner was in bankruptcy and the other partners could not absorb shortfalls or overruns they went into default.

Prescribe: With the consent of the borrowers the bank entered into ‘mortgagee-in-possession’ and hired an established real estate attorney to file the remaining ‘file maps’ to ensure that the original approvals were secure for the completion of the project. The bank also applied to the Board of Adjustment, Planning Board and Zoning board for additional time to complete the remaining phases of the project.

Cure: Having secured all the ‘file maps’ and having received additional time for the project, the bank found an experienced developer who had sufficient equity and partner strength to take over the loan. The developer’s track record demonstrated the capability to undertake a project of this magnitude. After appraising the current condition of the project and the value at completion the original borrowers were released from the loan because their investment in the project provided a value for the bank in excess of what was owed. The project was completed within the established time frame and the bank was paid in full.


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