Loan Workouts: First Steps for Commercial Property Owners

Large numbers of commercial property owners are facing prospects of imminent default under their loans as a result of the current public health and economic crises. Sudden and precipitous drops in revenues, coupled with uncertainty as to the disruption’s duration, are forcing owners to make difficult decisions about how to deploy their limited capital to protect projects and avoid loan defaults. While hospitality and retail assets currently are experiencing the most acute stress, no asset type is fully immune. In response to these stresses, many borrowers who previously never faced a loan default are considering loan modification requests, or seeking workouts in response to loan default notices. For these borrowers, negotiating loan relief presents a new experience with unknowns and pitfalls. This article explains some early steps in the process that borrowers should understand and for which they should be prepared before reaching out to lenders with relief requests.

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