Workout/Restructuring and Bankruptcy Advisory Services

Paradigm-Exeter Advisors offers real estate borrowers, lenders, and investors an array of services geared to distressed assets, challenging recapitalization needs, and bankruptcy. The firm has considerable experience analyzing, negotiating, and resolving distressed asset situations involving all product types (industrial, office, retail, residential, and hotel) for both private and nonprofit clients. The firm also relies on its core strengths in real estate market analysis, property operations, capital markets, financial structuring, asset repositioning, and partnership management to provide clients with compelling solutions to pressing asset problems.


FOR THE LENDER

Our team provides preliminary and comprehensive assessments for both single assets and larger portfolios. Services are geared to providing lenders with asset evaluations and risk assessments that go far beyond the more static, preliminary analyses of appraisals. For existing operating properties, our asset evaluations are based on a dynamic assessment of key factors associated with fast-changing market conditions and increasingly challenging operating environments. For incomplete projects, we carefully consider the cost, risks, and potential returns of suspending versus phased completion of stalled development as well as estimating net sale proceeds of fractured condominium assets. Sensitivity analyses based on bracketed worst case, best case, and base case performance scenarios help lay the groundwork for designing and structuring effective workout plans, and where deemed necessary, initiating appropriate foreclosure actions. Whether your needs are to get on top of several select problem loans or addressing larger portfolio issues, we can tailor the prospective scope to respond quickly to your requirements with the services summarized below:

Preliminary Collateral Assessment - Quick, independent assessment of the property, its market context, and associated ownership risks, including a review of competitive market conditions, prevailing trends, property operations, cash flow actuals and projections, capital budgeting, and adequacy of reserves.

Strategic Valuations - Forward looking valuation analyses using dynamic modeling and bracketed assumptions based on current and anticipated trends with worst case, base case, and best case asset performance scenarios.

Stalled Project Assessment - Independent review of a project including property documents, development plans, development budgets, proforma cash flows, marketing and sales programs (for condominiums), construction phasing, project status, and loan disbursement activity to date to assess the risks and associated costs-to-complete various full and partial build-out scenarios. Substantially impaired projects may warrant consideration of additional alternatives such as project restructuring, project redesign, alternative use scenarios, selective suspension of phases, retail auctions, orderly disposition, and wholesale liquidations to contain costs and maximize loan recovery.

Workout Plan Formulation – Comprehensive analysis of property and management to outline the lender’s best options to stabilize and enhance property performance, improve probability of loan repayment, increase control and collection of revenue, provide operating flexibility via forbearance and/or payment relief where appropriate, and recommend near-term strategies for accelerated loan paydown through asset sales, fresh equity from new partners, or partnership restructuring.

Collateral Recovery Strategies – Projection of risks, most effective means and expected net proceeds from foreclosure and disposition of collateral assets.

Foreclosure Coordination and Support Activities - Advance review of asset and property management systems and operating procedures to ensure a smooth transition during the transfer of management control to the REO team including a review of the tenant rent roll, vendor relationships, leasing programs, pending or immediate lease decisions, in-progress capital programs, pending tenant claims, administrative staffing needs, financial reporting, and fire, safety and security issues.

REO Property Management – Once the REO transfer is completed, our property management team, working in close coordination with the bank, can be deployed quickly, providing seamless transition to new management with reporting tailored to banks’ needs.

Orderly Disposition and Liquidation – We can help the REO staff prepare assets for sale, design, coordinate and implement a disposition program, and manage the due diligence documentation production and review process as well as structure, organize, and manage an auction-based liquidation program for fractured condominium projects or other real estate properties where liquidation makes the most sense.

Creditors’ Committee Representation in Ch. 11 Bankruptcy – We can assist creditors in bankruptcies involving real estate companies or corporations with substantial real estate holdings with oversight of the debtor, scrutinizing debtor’s affairs, reviewing the underlying assumptions of liquidation and orderly disposition elements of a plan, and evaluating the fairness and feasibility of a debtor’s plan for both secured and unsecured parties.

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FOR THE BORROWER

We create and implement viable real estate debt restructuring and asset recapitalization solutions for owners confronting maturity, technical, or financial default involving either securitized or whole loans. We also provide advisory services for owners facing workout or bankruptcy actions involving single assets as well as portfolios:

Preliminary Asset Analysis - After review of property descriptive information, competitive market data, property cash flows, appraisals, loan and other key documents, we will outline options for resolving asset issues with your lenders.

Workout Plan Formulation and Negotiation - We will design and negotiate the terms of an acceptable workout plan with your lender, providing financial relief and operating flexibility that is sensitive to the client’s specific legal, accounting and tax planning needs.

Debt Restructuring - We will put together a Loan Modification Proposal and negotiate the terms of an extension or appropriate form of payment relief.

Securitized Debt Negotiations with Special Servicers – We use our knowledge and experience with REMIC rules, and the rights, course of action, and administrative flexibility allowed under an issuer’s Pooling and Servicing Agreement (PSA), to negotiate the best short-term, interim remedy and longer-term resolution of your non-performing or technical default status.

Refinancing and Recapitalization – We will negotiate a plan for recapitalization with your lender or workout officer based on a careful analysis of the property operations, credit issues, risk assessment, financial modeling, and cash flow projections while confirming the feasibility of the proposed new capital structure and terms with select capital sources, mortgage brokers, and capital advisors.

• Pre-Bankruptcy and Bankruptcy Plan Formulation - We will carefully assess the net equity of a portfolio and propose a restructuring plan and negotiating strategy that balances creditor rights and priorities with the long-term viability of the owner’s business.

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FOR THE NONPROFIT ORGANIZATION

Many nonprofit organizations today feel the pressure of diminished resources and the pressing need for greater productivity in the face of declining income. Paradigm-Exeter Advisors has a range of real estate services that are tailored to the special needs of nonprofit organizations in this challenging economy. For organizations that own their own real estate, we can help you make sure these properties are being used and operated efficiently at a scale that makes sense based on current occupancy levels and activity patterns. For organizations that lease their real estate space, we can help you examine current use levels and explore opportunities for downsizing or right-sizing space requirements, including subleasing your surplus space to other compatible tenants. For nonprofits facing distress from growing operating deficits and non-performing real estate holdings, we offer workout, restructuring, and other distressed asset resolution services. Our services include:

Space Use and Operating Expense Review - Given pressures to trim overhead and the fact that occupancy costs are typically an organization’s second largest expense next to employment compensation, we will carefully evaluate a nonprofit’s use of real estate. Specifically, we will identify potential surplus space conditions, recommend means to reduce space costs through subleasing or renegotiated tenancy, identify rentable space measurement errors warranting rent reductions, conduct audits of potential lease expense recovery overcharges, and evaluate opportunities for additional savings through cheaper property and casualty insurance, contracted cleaning, energy use, security, and other property expense line items.

Balance Sheet Strategies for Owned Real Estate - Nonprofits that own their real estate may want to explore various options of prudently tapping into its value through several different strategies, such as entering into a sale-leaseback transaction structured with affordable occupancy costs on a long-term lease arrangement; selling off surplus land or buildings that are no longer required or compatible with the long-term goals of the organization; leasing surplus buildings on a short or long-term basis; or repositioning, renovating or redeveloping underused buildings or land that have tangible economic potential.

Nonprofit Workout, Restructuring or Bankruptcy Advisory Assistance - We are ideally suited to help your nonprofit organization negotiate and obtain financial relief from real estate lenders, landlords, and other creditors on owned or leased real estate obligations threatening the immediate or long-term viability of your organization through debt restructuring and more efficient real estate asset utilization, including possible asset sales, surplus space sub-lease programs, renegotiating existing leases, or other effective balance sheet strategies.

Nonprofit Receivership – We are prepared to serve as receivers for nonprofit organizations where the current organizational leadership is either temporarily impaired or no longer capable of providing the direction and management to work with an entity’s balance sheet, operations, and other resources to resolve operating and financial issues threatening the organization’s survival or longer-term viability.

Refinancing and Recapitalization – We will negotiate a plan for recapitalization with your lender or workout officer based on a careful analysis of the property operations, credit issues, risk assessment, financial modeling, and cash flow projections while confirming the feasibility of the proposed new capital structure and terms with select capital sources, mortgage brokers, and capital advisors.

• Pre-Bankruptcy and Bankruptcy Plan Formulation - We will carefully assess the net equity of a portfolio and propose a restructuring plan and negotiating strategy that balances creditor rights and priorities with the long-term viability of the owner’s business.

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FOR THE REAL ESTATE INVESTOR CONFRONTING POOR ASSET PERFORMANCE

The economic recession, financial crisis, and eroding markets have slashed real estate investment returns, precipitated cash calls, and in some cases, compelled the wholesale restructuring of limited partnerships, institutional closed-end funds and private REITs. Although some decline in asset performance is the consequence of broad-based economic deterioration, other decline stems from imprudent management decisions and the short-sighted acceptance of too much risk. Increasingly, investors are being hastily presented with unanticipated cash calls, partnership dilution options, and partnership restructuring proposals with limited background information, asset analysis, and lead-time to appropriately evaluate the options being presented. Paradigm-Exeter Advisors is ready to provide you with the necessary analytical horsepower on an accelerated schedule to help you make an informed, timely decision concerning your ongoing participation and future capital commitment to under-performing investments. Specifically, we can help you with:

Staying Current with Investment Performance and Management Issues - Many high net worth and smaller institutional investors don’t have the time, detailed current market knowledge, and technical expertise to monitor and analyze the performance of their passive real estate investments. Yet, they also dislike being confronted with unanticipated problems and latent capital decisions associated with deteriorating asset performance. Paradigm-Exeter Advisors can help investors avoid surprises by reviewing the latest performance of their real estate investments and carefully assessing the likelihood of future near-term cash calls, dilution, or investment restructuring decisions. Our expertise with the internal management of partnerships and various funds gives us the confidence to ask a sponsor’s asset management and research staff tough and insightful questions. Our findings are then corroborated with independent research and incorporated into a succinct, tailored report designed to meet your needs.

Advising Cash Call and Dilution Decisions - Choosing how best to respond to an imminent cash call is only the first step toward making a sound decision on continuing participation in an underperforming asset. An investor should confront the larger issue as well: whether or not this capital event will likely be just one of a series of cash calls required to stabilize this asset. An investor should consider what sort of market conditions may trigger additional calls and introduce other risks that contribute to further asset deterioration. Paradigm-Exeter Advisors will help you carefully evaluate the anticipated all-in capital requirements, projected yields, and associated risks of various asset turnaround scenarios in a broader investment context. Through our independent, disciplined analysis, we bring a fresh view to your investment decision making to ensure the investor is not simply throwing good money after bad and is also being adequately compensated for the incremental risk.

Protecting Your Interests in a Partnership or Fund Restructuring - When faced with a partnership or fund restructuring proposal, limited partners and fund investors need the advice and analytical insight of seasoned advisors who have run partnerships and funds and have successfully restructured such entities in the past. Restructuring often requires extensive financial analysis and a careful re-allocation of return commensurate with an appropriate re-allocation of risk. Equally important, is a clear alignment of operator and investor interests. Paradigm-Exeter Advisors can use its extensive restructuring experience, complemented by strong analytical skills, knowledge of alternative partnership and fund structures, and seasoned management experience to help you and your legal counsel review the restructuring proposal financial projections, terms and rationale, and if necessary, negotiate appropriate changes to achieve an acceptable resolution.

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FOR THE RECEIVER

Receivership experience is essential - Paradigm-Exeter Advisors works collaboratively with court-appointed receivers throughout the Eastern United States on both private and non-profit asset resolution cases. Given our seasoned experience, we know how the courts work and the manner in which the bankruptcy judges look to their receivers for sound, business-savvy recommendations to resolve complex and seemingly intractable distressed asset problems. In most cases, Paradigm-Exeter Advisors serves as a portfolio manager and workout and restructuring advisory specialist for receivers needing to stabilize, restore value and liquidate distressed assets on both an orderly or accelerated basis. To that end, Paradigm-Exeter Advisors works closely with receivers to review and analyze asset performance, systematically identify various elements of risk, stabilize asset values and formulate asset value-creation and disposition strategies for both whole loan and securitized loan portfolios.

Asset resolution/recovery strategies tailored for CMBS/MBS special servicers - Paradigm-Exeter Advisors’ involvement with securitized assets is growing rapidly as the courts become increasingly sensitive to the need to restructure portfolios outside the inflexible constraints of the REMIC rules in a pre-bankruptcy consensual context. In such cases, Paradigm-Exeter Advisors typically focuses first on thoroughly understanding and stabilizing the assets prior to an orderly liquidation in order to ultimately maximize sale proceeds for the benefit of creditors and potentially the debtor as well.

Crisis management can stem increasingly expensive problems - The firm is also prepared to deploy its team quickly as “crisis manager” as a means to stem rapid deterioration in asset values. In today’s harsh economic environment, debtors and creditors have far fewer options as asset values plummet and soaring costs make asset repositioning and value creation less justifiable if not infeasible. In most markets across the US, given how difficult it is to grow property cash flow and add value, it makes very little sense to allow distracted owners to neglect day-to-day operating needs or allow contentious parties to divert large sums on litigation while subject assets are denied critical funds for asset stabilization and value creation.

Accelerating asset deterioration limits flexibility and strategic options - Today, rapidly deteriorating asset values are increasingly common and surprisingly wide-spread due to adverse markets compounded by management neglect, lack of intensity of focus and slow responsiveness to obvious asset problems. In addition, many owners and operators are failing to adequately adjust their asset strategies in rapidly shifting market environments. To complicate problems further, cash-constrained owners are adopting increasingly conservative postures to a fault toward funding basic releasing costs, property maintenance expenses and fire, safety and access needs to remain or become compliant with zoning or other regulatory requirements. An essential step in turning around a deteriorating portfolio is the formulation of an efficient and cost-effective portfolio strategy and action plan. This overall assessment process and resulting implementation plan quickly factors in shifting background market conditions, key property characteristics, operating performance issues and impending financial , environmental, operating and political risks. Value stabilization and potential value creation are then addressed strategically in the action plan by identifying and implementing an array of selective, cost-effective investment and operating performance solutions on both an immediate and near-term basis.

A cost-effective, tailored scope to best serve the client - Paradigm-Exeter Advisors can tailor its portfolio management scope to meet the immediate and near-term needs of receivers with a customized array of tasks as follows:

Crisis Management - Portfolios facing rapid and severe deterioration in asset value may require immediate solutions to pressing management and operating problems even before a comprehensive asset stabilization strategy and disposition plan can be put in place. Teaming up with Paradigm-Exeter Advisors in a crisis management capacity can help the receiver stem further loss of asset value while avoiding agency situations involving inherent conflicts of interest with transaction-oriented, commission-based real estate service providers. These agents are often inclined to recommend liquidating assets prematurely for the sake of expediency and ease at the expense of maximizing near-term net proceeds from sale.

Initial Risk and Performance Assessment – Quick, independent assessment of the portfolio involving a review of property descriptive information, loan and property documentation, market information, tenant rent rolls, financial operating data and recent capital expenditures and budgeting and pending legal issues.

Site Visit and Preliminary Due Diligence – An important initial step in understanding the status and performance of a portfolio is to visit the properties involved, walk through the buildings, and if appropriate, talk with some of the tenants to better understand pressing operational and financial issues that may be directly affecting asset value. Rent rolls of poorly managed buildings are often out of date and inaccurate and may not even note large tenant spaces that have been vacated. The site visit also provides valuable insight concerning the condition of the physical plant including mechanical, electrical and fire& safety systems, the prevalence of excessive deferred maintenance and obsolete building features.

“Audit” Ongoing Management Activities – An important first step in stabilizing and turning around the performance of distressed assets is to review the performance of the existing property managers. The receiver should make sure that existing property managers are doing the correct job, have adequate systems and personnel in place and are providing the properties and tenants with the appropriate amount of attention and care.

Conduct Portfolio Valuation and Formulate Liquidation Strategy and Plan – This critical next phase first involves soliciting and reviewing proposals from brokers concerning leasing and potentially disposing of the assets as part of an accelerated or orderly liquidation strategy and program. Paradigm-Exeter Advisors will typically make suggestions as to the appropriate brokers to shortlist for review, critique and screen their respective proposals and assist the receiver in conducting brokerage firm interviews. The next step then involves the preparation of valuations of individual buildings and the portfolio as a whole. This phase of the process then culminates in a liquidation plan which incorporates a hold/sell analysis addressing the selection, sequencing, and timing of the asset disposition on either a portfolio or individual asset basis as well as the selection process for agency representation.

Manage Ongoing Operations and Execute Liquidation Strategy and Plan – Once the portfolio has achieved initial stabilization, the assets are ready for disposition and the respective sales agents have been selected, Paradigm-Exeter Advisors will monitor the progress of the ongoing property management, leasing and investment sales/liquidation activities. The extent of Paradigm-Exeter Advisors’ involvement in this phase of the portfolio management and disposition process is contingent on the successful execution and completion of the prior tasks scoped out above. Highly experienced mid-level managers are typically involved throughout this critical and final phase under the guidance of the firm’s senior management until Paradigm-Exeter Advisors achieves its disposition objectives within the proscribed disposition plan time-frame.





Workout/Restructuring and Bankruptcy Advisory Services