When purchasing a commercial real estate loan that is in “distress,” it is crucial that one understands the nature of the defaults and the motivations of each party involved in the transaction and the deal. Diligence is key.
Begin by mining your sources. How did you learn of the loan’s availability? A broker? A public record, such as a foreclosure complaint? Sign a non-disclosure agreement and access the data room and get as much information as you can. Schedule An Inspection
After confirming what you have obtained, review and analyze all the most recent loan and property information available.
To get started, obtain copies of:
Then begin to review and consider the loan documents. In this regard:
At the same time, diligence the property and the collateral—ask questions!
Who are you dealing with? Diligence the borrower, the guarantor and the sponsor.
Who are you dealing with? Diligence the loan seller.
Who are you dealing with? Is there a Mezzanine Loan and a Mezzanine Lender?
When it comes to the acquisition of distressed commercial mortgage loans, it bears repeating—diligence is key.
This is the first in a series of posts exploring key considerations for the acquisition of distressed real estate debt. In our next installment, we examine distressed mezzanine loans in particular.
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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