Workout veterans discuss troubled property

Real Estate Weekly, July 28, 1993 by Lois Weiss

Lawyers, bankers, major tenant negotiators and developers, many who have first-hand experience with buildings caught in the declining market, participated in a panel discussionthat examined what to do in a number of troubled property scenarios.

The format and program were organized and moderated by Michael Cohen of Williams RealEstate for the National Association of Corporate Real Estate Executives (NACORE). The meeting was held at the Downtown Club. Taking part in the discussions were developers Ian Bruce Eichner, president, Eichner Properties, and N. Richard Kalikow, chairman of Kalikow Realty and Construction; lenders Scott Purdy, vice president/Real Estate, Bank of Montreal, John Gorham vice president asset management of the Prudential Realty Group and Charles W. Schoenherr, district manager of General Electric Capital Corp.

Attorneys Andrew Hertz of Richards & O'Neil and Lawrence Lipson, a partner in Shea & Gould; and tenant representatives Bruce Bloch, vice president, Corporate Operating Services/Real Estate Finance at Bankers Trust Company and Dorette Luke, vice president/Real Estate, American Express, also took part.

The participants talked about problems that arise when buildings cannot support the loans. They also noted large tenants have clout in the marketplace but owners are in a difficult position when every other tenant in the building also wants to renegotiate their lease.

Eichner said the development of a viable business plan and strategy for the building can aid in negotiating with both lenders and tenants. With some properties, Kalikow said, there could be alternate uses depending on the zoning and location of the shell.

The lenders conceded their workout groups are not always up to par when it comes to running huge office complexes.

Purdy agreed with Lipson that it is better to either leave the developer in place or bring in another expert operator to give the building an appearance of stability. When a lender no longer wants to put more money into a project, Kalikow said, "Either make a deal with me or do a classic bankruptcy."

Keeping a tenant in place is also important during that time period because it is good word-of-mouth for the building. - "You have to keep the patient alive," Kalikow added. "Everyone has mutuality of interest and lenders have to recognize this."

The lenders have to start thinking like entrepreneurs, Purdy said, something that he believes is a "difficult feat" for the 25-to 30-year- olds in the commercial banks who might be put in charge' of running a $ 100 million building.

Because the market deteriorated so rapidly and the lenders were unprepared, Eichner said, he suspects a workout today on the same properties that had problems in 1990 to 1991 would produce a different result.

Gotham explained once a loan has lost money, the lender is not going to recover it. 'Then it is cut your losses, not make a profit, " he said.

All parties agreed they needed to work on a more cooperative basis particularly when several lenders are involved.