Commercial Real Estate Portfolio and CMBS Loan Workouts: Forbearance, Foreclosure and Bankruptcy

Workout agreements allow loans to be restructured to protect an owner’s interest in property and the lender’s investment. Counsel for both parties must strategically negotiate such agreements to ensure that their clients can pursue their original remedies in the event that the workout fails. Well-structured forbearance agreements or waivers are essential to protecting a lender’s position. Counsel representing lenders must anticipate and successfully navigate obstacles during the negotiation process and avoid pitfalls that can result in lender liability challenges by borrowers. As workout agreements may then be followed by the borrower’s bankruptcy, counsel must also be mindful of the bankruptcy implications when drafting forbearance agreements. Understanding the automatic stay is critical and stipulations supporting relief in a bankruptcy must be carefully considered. Counsel should prepare special servicers to clearly understand the specific challenges they face in their duties. Special servicers must cope with their responsibilities under pooling and servicing agreements and other rules that can challenge their goal of maximizing recovery. Counsel should also prepare borrowers for the limitations to which special servicers are subject and the range of options available to special servicers so that the parties have the best opportunity to explore realistic outcomes for a workout or resolution of distressed real estate collateral assets.