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Media Contact:
Christine Ziomek
chris@caryl.com
(201) 796-7788
Feb. 18, 2010

Real Diligence Takes Unique Approach To Loan Workouts For Distressed Commercial Property

As distressed commercial real estate increases, lenders and borrowers seek alternatives to foreclosure. Real Diligence LLC has taken a unique approach to workouts, combining commercial real estate, market and financial due diligence with expertise and relationships in the servicing and banking industries to negotiate favorable workouts.

“Our approach is obtaining a mastery of the asset that surpasses the bank’s understanding,” explained David Tesler, CEO of Real Diligence. “Workouts are typically in the form of restructuring the debt or discounted payoff. The cornerstone of this approach is the quality of our Distressed Asset Report.”¬† The Distressed Asset Report is customized to achieve a specific goal. “No two reports are alike,” explained Tesler. “But there are common elements in each." The basic structure is this:

Executive Summary and Proposal. “Because many servicers and lenders don't have time to comb through 100+ pages of analysis, it is critical to have a clear executive summary and proposal,” said Tesler. Real Diligence’s Executive Summary provides a narrative of the property from purchase/origination; explanation of the distress; Gross Present, Net Present and Acquisition Present Value; and compelling argument for restructuring the debt or obtaining a value for a discounted payoff solution.

Market Summary. “To understand the asset, a Real Diligence analyst visits the property for 36-48 hours,” confirmed Tesler. They are able to understand it in a way never accomplished solely by reviewing financials, but by physically assessing the “bricks and mortar,” conducting a 10-15-mile radius search of comparable assets, and speaking with local brokers/leasing agents and management companies to establish a realistic understanding of comparables.

Financial Analysis. “In the Financial Analysis, we report on due diligence conducted on the asset,” explained Tesler. "Real Diligence re-underwrites the asset, and after discussion with ownership about challenges facing the property, we're able to cast realistic projections. This due diligence, along with findings obtained by site analysis, is used to project valuations asserted in our Executive Summary.”

Evaluation and Critique of Market Studies. Servicers and lenders rely in part upon “Market Comp” reports from industry experts to help establish property values. But they cannot understand the nuances in every market, certainly not on a property-specific basis. Real Diligence orders a market report to review and compares its conclusions to actual and verifiable valuations, to provide realistic property valuation.

Banks, struggling to get a true picture of the asset, order appraisals or other studies for assistance. Real Diligence reviews these reports and critiques or utilizes them to further the strategy of achieving favorable restructuring of debt, discounted payoff or some other workout. While loan workout services use industry contacts and some combination of finesse and hardball tactics to workout a distressed loan, Real Diligence focuses on the due diligence to make the case.

“Greater success is possible by leveraging expertise and ‘on the ground’ knowledge about the property and let the numbers speak for themselves,” Tesler explained. “Industry contacts and negotiation are critical, but are no substitute for accurate valuation that allows us to advocate for a specific solution. We can document our proposed workout and provide the detailed distressed asset report as back-up. In turn, this report provides the servicer or lender with cover when they meet with their credit and review committees.”

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