Purchasing Distressed Real Estate Debt: Performing Due Diligence, Documenting and Closing the Deal, Liquidating the Debt
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Real Property - Finance
- event Date
Tuesday, March 12, 2024
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
-
This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE course will examine the due diligence and transactional issues involved in acquiring distressed commercial real estate loans. The panel will provide best practices for negotiating and structuring these deals to take advantage of the opportunities currently available while mitigating inherent legal and financial risks for both the buyer and seller.
Mr. Fitzmaurice's practice focuses on representing lenders and other creditors in workouts, restructurings, litigation and bankruptcy matters. He regularly represents clients in fraudulent transfer and other types of avoidance litigation. Mr. Fitzmaurice is also frequently involved in advising creditors in foreclosure and other types of enforcement actions involving real estate and UCC collateral.
Ms. Harcourt represents lenders, owners, investors, developers and tenants in all aspects of commercial real estate. She is the head of the firm’s Real Estate Finance Group and also leads the New York Real Estate Group. Ms. Harcourt advises on acquisitions and dispositions of property, ground leases and space leases, development projects including large mixed-use development projects, joint ventures, borrower-side financing transactions, condominium projects and hotel management and related arrangements. She also represents lenders in connection with the origination, sale and purchase of mortgage and mezzanine loans and the negotiation of intercreditor, co-lender and participation agreements in multitiered debt stacks. Having practiced through several real estate cycles, Ms. Harcourt also has considerable experience representing lenders, borrowers and investors in connection with distressed real estate loans and other assets, including forbearances, workouts, foreclosures and restructurings (both in and out of bankruptcy).
Mr. Guggenheim is an accomplished commercial real estate attorney who focuses his practice on traditional real estate matters, such as acquisitions, dispositions, and financings. His practice also encompasses complex investment structuring involving joint ventures, preferred equity, participations, syndications, co-investments, parallel vehicles, private REITs, and discretionary funds. In addition to his practice, Mr. Guggenheim serves as a lecturer in law at USC’s Gould School of Law, where he teaches the real estate joint ventures course and regularly guest lectures for the real estate transactions and finance course. He also frequently speaks about commercial real estate topics in webinars and at conferences and contributes articles to real estate and legal publications.
Mr. Smith has a multifaceted commercial real estate practice that encompasses a broad spectrum of acquisitions, dispositions, financings, restructurings, and leasing. He draws on his extensive in-house experience to counsel clients on all aspects of real estate matters related to multifamily, office, hotel, and retail properties. Prior to joining the firm, Mr. Smiht was general counsel of a New York City–based real estate development and investment company. His role included advising on legal issues related to property acquisitions and sales across the U.S. and custom multi-partner equity partnerships that often incorporated complex 1031 exchange structuring and tenancy-in-common arrangements. He also handled development financings, refinancings, debt restructurings, and equity recapitalizations.
Distressed debt is once again becoming a frequent topic of discussion among real estate professionals given the current economic environment. The market landscape presents great opportunities for investors who aim to purchase these troubled loans at a significant discount, with the goal of a favorable outcome. Also, rather than amend a loan in default, or extend or refinance a matured loan, a lender is more likely to sell a distressed loan at a discount to par. While these market conditions present great opportunities for lenders and investors, debt acquisitions also carry significant legal and financial risks.
As a successor to the lender, investors can pursue remedies such as debt restructuring, loan-to-own strategies, reselling, or claim an interest in a debtor's bankruptcy proceedings. To ensure a successful transaction, it is critical that investors perform comprehensive due diligence relating to the loan and underlying collateral. Due diligence review should include an examination of title, zoning, building codes, and environmental concerns, as well as identify expenses and impediments to exercise any loan remedies such as receiverships or ongoing lawsuits.
When documenting and closing the deal, it is particularly important for buyers and sellers to obtain and review all relevant underlying documents including assignments, original loan documents and the loan file, the lender's title policy and assignment endorsement, and estoppels and consents. When drafting the loan purchase and sale agreement of the transactional parties, special attention should be given to the representations, warranties, and related remedies to ensure the client's interests, whether buyer or seller, are adequately protected.
After the closing, the investor's ability to realize its desired return will depend on the prompt repositioning or disposition of assets, requiring an analysis of the non-performing loan to determine if foreclosure is the best option or if other strategies are worth pursuing such as a loan workout, receivership, loan modification, or a deed-in-lieu of foreclosure. When deciding on the best approach, investors should bear in mind the income and property tax considerations, title coverage issues, mezzanine loan foreclosure issues, and any other issues that may present risks or expose the investor to liability.
Listen as our authoritative panel explores the key issues and considerations involved with underwriting, acquiring, working out, enforcing remedies, and liquidating distressed real estate debt.
- Current market conditions
- Things to consider before buying distressed debt
- Types of distressed debt
- Contractual constraints: intercreditor, participation, and pooling and servicing agreements
- Investigating and underwriting the deal
- Due diligence: property operations, loan documents, borrower parties, and loan history
- Known and unknown risks
- Potential pitfalls: uncooperative third parties
- Workout/modification and foreclosure/deed-in-lieu concerns
- Documenting and closing the deal
- Important deliverables
- Representations and warranties and other remedies
- Key terms in the loan purchase agreement for buyers and sellers
- After closing considerations: repositioning or disposition of the asset
- Mortgage foreclosure and guaranty enforcement
- Mezzanine foreclosure
- Deeds-in-lieu
- Title coverage issues
- Income and property tax considerations
- Other issues and considerations
- Bankruptcy risks
The panel will review these and other key issues:
- What are the current market conditions prompting opportunities for investors seeking to acquire distressed real estate loans?
- What are the risks and issues unique to acquiring, working out, and liquidating distressed real estate debt?
- What are the key considerations for buyers and sellers when documenting and closing a distressed debt deal?
- What are the issues related to working out or foreclosing the loan as the holder of distressed debt?
Related Courses
Real Estate Secondary Transactions: Generating Liquidity, Managing Risks, Optimizing Portfolios
Tuesday, April 22, 2025
1:00 p.m. ET./10:00 a.m. PT
Zero Cash Flow Net Leased Property: Structure, Financing, Advantages, Disadvantages, Tax and Regulatory Considerations
Tuesday, April 1, 2025
1:00 PM E.T.
Special Purpose Entities in Real Estate Transactions: Structuring and Documentation
Wednesday, April 2, 2025
1:00 p.m. ET./10:00 a.m. PT