The commercial real estate industry is no stranger to distress cycles. Commercial real estate deals are often highly leveraged, subjecting properties, their owners, and lenders to potential distress when the cost of capital increases, boosting the risk of loss for all stakeholders. Recent history bears the hallmarks of a commercial real estate shakeout coming (or already here, in some cases). The Federal Reserve continues its march to increase interest rates (most recently implementing the 11th hike in the last 18 months in July). As the cost of capital increases and debt service becomes more challenging, professionals can remain prepared and vigilant to serve clients by staying on top of issues that frequently arise in distressed commercial real estate turnarounds and transactions, so that they can effectively craft pragmatic and creative solutions for clients navigating these issues.
In this issue of the Journal of Corporate Renewal, our featured authors have each contributed analysis and insights from their own unique perspectives. Harold Bordwin and David Levy of Keen-Summit Capital Partners kick off the issue by examining the commercial real estate landscape in the face of decreasing property values combined with rising interest rates and $1.5 trillion in debt set to mature in the next four years. They detail various options available to borrowers and lenders dealing with distressed real estate assets.
Next, Debra Morgan of CohnReznick provides a comprehensive foundation for any practitioner looking to understand and navigate the world of commercial mortgage-backed securities (CMBS) lending and the practical steps taken by parties to CMBS loans in distress, with a focus on the hospitality sector as an illustrative and timely example of how these issues play out.
Harold D. Israel and Sean Williams of Levenfeld Pearlstein LLC and Ivan Gold of Allen Matkins provide insights for landlords thrust into a tenant’s Chapter 11, with a particular focus on the legal mechanics of assuming and assigning lease obligations, the attendant disputes that arise over monetary and nonmonetary cures, and how “adequate assurance of future performance” is interpreted by various courts, among other issues.
Jamie Coté of Hilco Global then discusses the opportunities presented in a distressed commercial real estate market from an investment banking perspective, discussing creative deal structures and strategies for borrowers and lenders, including sale-leaseback agreements, lease restructurings, and portfolio maximization.
Finally, Veronica Rocha of Arch + Beam and Jeannie Kim of Sheppard Mullin look at the case for a West Coast comeback, focusing on the San Francisco and broader Bay Area market to illustrate turnaround opportunities and challenges for property owners and prospective buyers, providing a roadmap for transforming the landscape of the commercial real estate market from the Bay Area and beyond—not to mention an excellent lead-in to the 2023 TMA Annual, which I hope to see you at this year!
In addition to our authors, I’d also like to say a special thank you to Eddy McNeil and Nicholas Leider for all their efforts in making the JCR the excellent publication it is, and the opportunity to serve as guest editor for this issue of the Journal.