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08.Texas Business Park

SITUATION:

This LLC owned and managed a commercial business park which primarily offered office space available for rent. Due to the recent economic downturn, the client's commercial office building, in the outlying areas of Texas, was struggling with devaluation and high vacancy rates (estimated near 78%) driven by increased competition for an existing, yet highly limited supply of prospective tenants. The business park's owner faced significant cash flow problems due to low vacancy rates since early 2008 and was since unable to attract new tenants and stabilize the property. Furthermore, the drop in commercial property values across the nation in 2008-2009 made any hopes of finding adequate refinancing unrealistic. A lender's appraisal was reported in September of 2014 and estimated the property's value at only 34% of the original principal balance; underwritten in mid 2006 and based solely on future projections of increasing value.

Throughout 2008-2013, income kept slipping downward while expenses either held constant or increased. The owner struggled for years to fund his debt service obligation using his own private equity and personal resources. As so many commercial property owners already know, funding the mortgage payments "out of pocket" could only continue for so long. As a result, the loan slipped into payment default and was expeditiously moved into special servicing. The lender began moving aggressively within their legal rights toward foreclose.

Within a matter of weeks, the lender had coordinated and approved sale of the note to a private, third-party investor. The note was sold, at a discount, through an internal sale agreement between the special servicer and a private, third party. The small, Texas based investment group specialized in purchasing notes on distressed assets, foreclosing on them, and selling them for a profit- all at the loss or the original borrower.

The new note holders filed for immediate foreclosure and the borrower was faced with approximately 30 days to save his property in its entirety. The borrower still saw great potential within this particular asset and was not prepared to lose it to foreclosure.

WHAT WAS DONE:

The Mitigation Team was retained by the business park owner to intervene and work toward a solution with the new note holders in advance of the foreclosure sale date. The Team was able to analyze the pertinent data, determine the best position to take, and negotiate a discounted purchase offer directly with the new note holders. The Team provided an objective financial analysis which helped to shape the present note holder's perceptions of the property's inherent value. The Team proceeded with an aggressive negotiation with the note holders and was able to successfully reach an agreement on a purchase amount between both parties.

This acceptance of a discounted payoff resulted in an end to the foreclosure. The note holder halted the proceedings and accepted the offer for a payoff. The property owner was not only able to purchase the note on his business park at a 41% discount from his principal balance owed, but was also able to avoid repayment of late fees, default interest, contract interest owed in arrears, and defeasance. The Team intervened ahead of the sale date, saving the business park from total loss through foreclosure.

In a few short weeks, the business park owner succeeded in purchasing the note on his property, at significant discount, from an otherwise aggressive, foreclosureminded note holder. Alliance successfully helped the owner secure the title to his property and inherently erased a debt that included hundreds of thousands of dollars in fees, penalties, and arrears