Utilizing the Bankruptcy Code to restructure real estate assets has always presented unique challenges for bankruptcy lawyers. When the peculiarities of real estate financing collide with the Bankruptcy Code, the results can be unpleasant. But, current economic conditions are pushing more real estate assets towards bankruptcy due to weak markets that have kept property values below the levels needed to support their current debt. Meanwhile, courts have been eliminating some of the bankruptcy techniques that real estate debtors have historically used to cram down their debt to match asset values. Despite their individual significance, the confluence of these trends is not likely to have an immediate impact on the dynamics of real estate Chapter 11 cases.
Current Economic Environment
It has been a while since the real estate bubble burst and led the global economy into the Great Recession. More recently, with commercial vacancy rates falling modestly and rents rising slowly, the market fundamentals have improved. Rising real estate values have helped to nurture the economy's long, slow trek toward recovery. But lethargic economic growth, even amid low interest rates, presents continued challenges for this mini-bubble. So, while the number of bankruptcy filings has continued to decline, real estate remains in the cross-hairs.
