I’m writing from Pennsylvania Station on a particularly bad day for our national rail service (Amtrak) – apparently the heavy rains and gusts wreaked havoc with electrical wires running both North and South, delaying (or cancelling) every Acela, Keystone, Silver Meteor, Silver Star and Vermonter scheduled to leave our country’s busiest transport hub. The (woefully underrated) holiday movie Love Actually opens with Hugh Grant’s musing that when faced with the general gloominess of the world he considers the smiles of arriving Heathrow passengers as they greet their waiting loved ones. On this first day of December and first night of Hanukkah, however, I’m fearful that Mr. Grant would be sorely disappointed in the zeitgeist of the half-million or so travelers looking to depart for Stamford and Boston, Philadelphia and DC and the balance of the Northeast Corridor.
I was in New York to speak at IMN’s 10th Annual Borrowers’, Investors’ and Special Servicers’ Forum on Real Estate Lending & Distressed Debt. As always, the conference drew over 500 people to the Roosevelt Hotel – mainly servicers, borrowers, advisors and attorneys. The topics revolved around mezzanine lending, distressed debt (it’s important to remember these are not necessarily the same thing) and what 2011 will hold for an industry certain only that each new year carries with it its own uncertainty. First-day presentations included Dechert partner Kathy Burroughs moderating a discussion on servicing issues with a particular emphasis on special servicers’ take on disposition strategies, and Deborah Ginsberg from Captrust participating in a lively discussion on tranche warfare and survival techniques when living among the deeply subordinated. My panel – Mezzanine Loan Workouts and Case Studies – was a general discussion of what we are seeing in the market. Some familiar territory here – discussion of pretending and extending; this term tends to get thrown around pretty liberally at these gigs. I hate it – implies (to me) a certain laziness and neglect – in truth, if we’re kicking the can down the road, it’s opting for a future calamity over a current catastrophe. Lots of discussion on discounted payoffs and loan sales, with sales expected to curtail somewhat in ’11 (the general feeling being that the universe of potential bidders for real estate far exceeds that for distressed loans, and selling REO avoids the haircut bidders give for stepping in to clean up the mess). Sales to borrowers and borrower affiliates were broadly discussed, as we weighed in with our thoughts on strategies for dealing with intercreditor prohibitions. Lastly, we discussed the importance of recourse guaranties as an important leverage tool – especially for underwater lenders looking to maximize any possible recovery (think hold-up value for potential pre-packs or deeds-in-lieu higher in the capital stack).
The topic du jour, however, was the Stuy Town/Peter Cooper decision and its impact. Things got, well, downright heated during one panel on this topic and I found myself talking through this issue for a good half hour with attorneys from other firms. Personally, I like Rick’s general take on this case. And even setting aside the particular language in question (which reasonable people can argue about for hours) – no one walked into this deal expecting that the mezz would need to stroke a $3 billion check in order to foreclose (to say nothing of whether it makes any sense – at all – to “cure” an accelerated mortgage loan). That said, I’m not at all confident that (aside from some unavoidable late-nights gnashing over the mezzanine foreclosure section of future intercreditors) it will matter all that much. At the end of the day this decision had less to do with the architecture of mezzanine finance than it did with the orderly transition of the ownership of a property that houses 12,000-or-so registered voters.
My Acela finally left Penn Station, but as I bring this to a close we’ve been stranded somewhere north of New Haven and south of New London. More electrical problems – late fall winds blowing trees into our path somewhere up ahead; perhaps a fitting end to a conference spent looking toward an uncertain 2011.
By Matthew Clark.