FINfacts Newsletter XVII-1

GSP is noting a shift in our business activity.  Increasingly, our company’s expertise is utilized by both sponsors and capital sources to facilitate work-out situations.  While most distressed situations require some type of new capital infusion, (be it mezzanine to reduce the balance of a senior note or a complete recapitalization), our first assignment is often in an advisory/consulting capacity.  Work-out negotiations typically involve all stake-holders in the capital stack, (senior lenders, mezzanine lenders, JV equity partners, and sponsors), and demand understanding of complex motives and decision making structures.

By way of example, GSP recently completed a consulting assignment for a major institutional real estate investor.  The client operates a large portfolio of multifamily properties.  The economic down turn has negatively impacted their business plan, and threatens to put a handful of assets into “work-out” later in 2009.  The client initially engaged legal counsel to facilitate discussions, but found that involving lawyers raised defensive barriers among the equity and debt partners.  GSP was engaged to improve the tenor and clarity of communication.  We reviewed the loan documents and joint venture agreement for the portfolio, flagged risk items, advised the client’s preparation of a new business plan, and recommended preparation of certain documents to protect the client’s position and to facilitate future discussions.  GSP was compensated on a time and materials basis.

We are now undertaking several additional work-out assignments wherein the subject asset has declined in value and lost tenants, while the senior loan has matured.  New senior debt proceeds are insufficient to  pay off the senior lender.  GSP is a.) representing the sponsors to their existing lenders to negotiate for pay-downs/extensions or discounted pay-offs, and b.) arranging any new senior debt and mezzanine financing that may be required.  De-levering and establishing a workable debt basis with minimal bloodshed requires creativity, a collaborative spirit, and strong relationships.  GSP is being compensated with an up-front retainer and success based commissions.

Despite a challenging market, GSP continues to facilitate real estate investment transactions with discretion and expertise.  Our long standing industry relationships are more valuable now than ever.  Please contact your GSP representative to see how we can help you.  (Gary Mozer, Steven Orchard, and Joshua Roseman)