The number of distressed commercial real estate loans continues to grow substantially with the credit crisis entering its third year and as the underlying fundamentals of commercial real estate continue to deteriorate. Foresight Analytics estimates delinquencies on commercial real estate loans by banks will rise to 9.47 percent in the fourth quarter of this year, up from 5.49 percent a year earlier.1 In such an uncertain environment, in advance of an imminent loan default or following a loan default, it is critical for borrowers to have a clear understanding of their legal rights as well as to know the limits and motives of the players with whom they will be negotiating or litigating.
As the adage goes, “forewarned is forearmed.” A borrower’s success in negotiating a favorable workout is heavily influenced by not just whether it makes business sense for the lending group to enter into a workout, but whether a special servicer or “operating advisor,” as the case may be, has the authority to act and the factors which may motivate their decisions.
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