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How Commercial Real Estate Borrowers Should Approach Their Lender: What to Do Before Defaulting (Part 5)

Experienced workout professionals carefully think through the first meeting with a troubled borrower. It is critical that the borrower, often unaccustomed to failure, recognizes why its loan has been reassigned to the Special Assets Department and why its new banker is a workout professional. It is also critical that the borrower comes to understand that the lender is willing to explore various means of getting the loan repaid consensually as an alternative to filing a collection lawsuit or foreclosing.

Savvy workout professionals take time to let the borrower know exactly what is expected by the bank before the first meeting takes place and then reinforce that information at the meeting. A bewildered borrower is of little help in troubleshooting the problem and looking for solutions. A prepared and thoughtful borrower who is willing to engage the lender may find a way out that is palatable to the bank. The fifth and final post in our series taken from my Urban Land article, “What to Do Before Defaulting,” lays out some basic steps for a commercial borrower to follow before meeting its workout team for the first time. Do not assume that your borrowers know these steps, even if they are otherwise sophisticated investors or business people. Tell them clearly and as simply and as soon as possible.

What to Do Before Defaulting (Part 2)

Copyright © Urban Land Institute’s Urban Land Magazine 2010. Reprinted with permission.

Meeting the Lender
The first meeting between lender and borrower is critical. This is an opportunity not only for the two parties to get to
know one another, but also for the borrower to demonstrate competence and the ability to identify and manage any difficulties facing the building. The borrower’s goal is for the lender to walk away from the meeting with an understanding of the problems and the knowledge that the owner recognizes those issues and want to works with the lender to resolve them favorably for the benefit of both parties.

Here are some steps to follow:

• Come prepared with handouts explaining how well the building performed when times were better, and show why the building’s performance has tailed off.
• Prepare a sophisticated, yet brief, description of the local marketplace similar to the flyers that local brokers provide from time to time. Let the lender know where vacancies are in the neighborhood. Tell the lender exactly what the vacancy rate in the building is today and what it has been in the past. Project current and upcoming leases in a realistic manner. Never assume that the lender understands the local marketplace, but do not talk down to the lender either.
• Address operating costs and explain what can and cannot be done to cut them. Be frank, realistic, and humble–but also be convincing and forthright. If you truly believe that you can manage the building through this crisis, make certain that the lender gets that message.
• Avoid confrontation, even if inappropriate remarks are made in frustration by either side. Assume that both the lender and the borrower had the same information available before the loan was made: the mistake that has resulted is mutual, if it is a mistake at all. No one could have foreseen the sharp downturn in the real estate market in the past two years.
• Invite the lender to tour the facility and to review any books and records he or she has not already seen. Ask the lender to suggest areas of improvement or change that might not be apparent.
• Explain that you want to find a way to repay the lender, but that the constraints of the marketplace will have to be taken into account. Show the sacrifices that you and your team have made to keep the building operational and explain what further sacrifices you are willing to make in order to preserve your investment and their loan.

This is Dick Rogan, bank lawyer and author of, signing off for now. Join us again soon to check out what’s new in the World of Workouts.

Year after year, day after day, workout professionals in the know rely on JMBM’s Special Assets Team™ to handle problem commercial and real estate loans. Whatever problem loans you have, chances are, we’ve seen it. Give us a call.


Our Perspective. JMBM represents commercial banks, special servicers, private lenders, asset-based lenders, hard money lenders and factors. We help lender clients throughout the United States craft business and legal solutions to their commercial and real estate troubled loans. For more information, please contact Dick Rogan at, or (415) 398-8080.

Richard A. Rogan is Chair of the JMBM Special Assets Team™. He also serves as the co-managing partner of JMBM’s San Francisco office and co-chair of its Bankruptcy Practice Group.

JMBM’s Special Assets Team™ has represented hundreds of lenders in California and throughout the United States. We regularly appear in bankruptcy courts, district courts and superior courts. We are proud to serve as trusted counsel and advisors who look for a business solution and try to help lenders find the best possible resolution for each troubled loan. Whether a loan is being newly documented, restructured or litigated, JMBM’s Special Assets Team™ has the skill, know-how and experience to solve your problem in a practical no-nonsense way.

NOTE TO CONSUMERS: As a matter of Firm policy, JMBM does not represent individual consumers who have disputes with their lenders. Many lenders have specialized consumer workout professionals who have the time to help consumer borrowers. There are many fine attorneys who specialize in representing consumers. Individuals with consumer lending problems should contact a lawyer or law firm who specializes in consumer insolvency and bankruptcy in their local area. When in doubt, we suggest you contact your local bar association’s Lawyer Referral Service. [For example, see Bar Association of SF or LA County Bar Association Lawyer Referral Services]

JMBM does not provide legal advice to consumers, and cannot respond to consumer inquiries.