Press Release: Joseph Chris Partners and MPKA form Alliance

Joseph Chris Partners is excited to announce that we have formed an alliance in our real estate division with MPKA. This partnership will allow us to fully service the residential, development and construction industries. MPKA owners include: Bill Albers, David McCain and Joe Walsh.

Bill Albers was formerly an Executive Vice President for Centex Homes where he also served as Corporate CFO. Most recently, Bill was a Partner with IHP Capital Partners. David McCain previously led Lennar Financial Services as CEO and was formerly General Counsel and Secretary for Lennar Corporation. Joe Walsh, led one of the most geographically diverse and profitable regions at US Home and Lennar Corporation as a Regional President.

By partnering with MPKA, Joseph Chris Partners now offers expanded services which include capital sourcing as well as debt restructuring which include: renegotiating the terms of existing debt and personal guarantees. MPKA has successfully restructured more than $1.5 billion of homebuilder and developer debt over the last 24 months. Further, MPKA provides strategic advice, including board advisory services and services related to Mergers and Acquisitions, Land and Project Acquisition & Disposition, and Model Sale Leaseback Programs.

In addition, MPKA provides Operational Consulting based upon your Company’s strengths and challenges.
No matter your needs, MPKA’s team of experienced homebuilders will analyze your operations, recommend practical solutions for improvement, and work with you and your management team on implementation.

Together, Joseph Chris Partners’ 33 years of driving business connections by recruiting and consulting in the Real Estate, Development and Construction industry in combination with MPKA’s expertise and services, look forward to working with you, by collaborating, creating, and developing meaningful and rewarding partnerships.

For inquiries about MPKA and their services, please call Claire Spence, Executive Partner, at 281.359.2127.

Veronica Ramirez, CEO
Joseph Chris Partners

Debt Restructuring: Moderating Factors and Lessons Learned

Reprint from Nation’s Building News – The Official Online Newspaper of NAHB

Debt Restructuring: Moderating Factors and Lessons Learned

(This is the fifth and final article in a series on what builders need to know about restructuring their debt and planning for surviving financial adversity in today’s real estate market.)

By David McCain and Bill Albers, MPKA, LLC

Once a debt restructuring specialist has been hired and the process of restructuring begins, there are many factors — both subjective and objective — that can come into play and affect the outcome of the negotiations and the timeliness of the deal.

From a subjective standpoint, all of the participants — the borrower, capital provider, lender, outside counsel and debt restructure specialist — have different perspectives, goals and personalities that must be taken into account:

• Borrowers are motivated by financial survival, protecting their personal balance sheets and devising a strategy that will enable them to still be around to profit during the next positive business cycle.
• Capital providers and investors are focused on safety, risk avoidance, investment time horizons, geography, asset type, size and class, credibility of the developer and healthy returns.
• Lenders are focused on the balance sheet, risk-based capital ratios, earnings and quarterly profit and loss reporting. In fact, our experience is that the vast majority of debt restructure workouts are finalized during the last 15 days of a fiscal quarter. In addition, bank officers and special asset managers are driven by job retention and obtaining appropriate data summaries to support negotiated resolutions in asset review committee.
• Outside counsel is focused on carrying out the client’s orders — collecting as much as possible for the lender or paying as little as possible if representing the borrower. This inherent conflict will continue to manifest itself throughout the documentation process, even after there is a verbal agreement or written outline of the restructure settlement terms. For this reason, it is important to keep the debt restructure specialist engaged during the documentation phase to continue to referee the settlement.
• Finally, the debt restructure specialist is motivated to negotiate and mediate an effective and fair resolution. The goal is simple: get to the workout and settlement phase of the conflict as quickly and efficiently as possible while avoiding the unnecessary cost, time and labor associated with most litigation or conflict resolution procedures, or the inaction that often results from self-help remedies.

In addition to accounting for the dynamics of the various players in the debt restructuring process, objective factors need to be taken into consideration in order to achieve a successful resolution. Among the many issues that can arise:

• Whether the debt is recourse or non-recourse. Is the debt personally guaranteed?
• Whether the debt is underwater, and if so, by how much.
• Whether the lender has a true value of the property, such as a recent appraisal.
• The state law debt enforcement procedures. In a judicial foreclosure jurisdiction, the procedure can typically take 12 to 18 months, compared to a trustee sale jurisdiction, where it is 30 to 120 days.
• The type of lender. Is it a regulated entity such as a bank or insurance company, or non-regulated such as a private equity group? Much of the accounting that is required of regulated lenders is absent in a non-regulated environment.
• Disparate financial capacity of multiple guarantors.
• Project quality, geographic location, size and stage of completion.
• The integrity and quality of the borrower, which may lead the lender to perceive that the borrower “won’t pay” vs. “can’t pay.”
• Loan status — current, matured, monetary default, non-monetary default, foreclosure or bankruptcy.
• Single or multiple lenders.
• Organization and record keeping of the borrower.

Lessons Learned

From the standpoint of a builder or developer, debt restructuring can be a frustrating and emotional process. One minute can bring fear and the feeling of helplessness, and the next a sense of excitement over the possibility of a rescue. In this series of articles, we have discussed the shortcomings of attempting to negotiate on your own behalf, the confrontational nature of employing legal help and the potential benefits of engaging a debt restructure specialist.

We reviewed the debt restructure process itself, its typical length (three to six months) and the exchange of information needed to proceed toward a resolution. We also reviewed the possible outcomes in detail — including loan extensions, A and B note structures, discounted loan purchases, deeds in lieu of foreclosure or title transfers to the lender, and loan collateral liquidation.

Finally, we reviewed actual debt restructure case studies involving builders and developers of varying size and experience; with properties in different geographic locations, having multiple sizes and product types, in various stages of completion; and with several lenders.

From the authors’ view, helping borrowers sleep better at night by providing financial certainty in a highly stressful environment is extremely rewarding. Helping lenders get through the decision-making process in an expedient fashion is also satisfying. We look forward to continuing to do our small part to get this economy back on track, get developers and builders back to work and place serviceable real estate back in the market at right-sized prices.

David McCain and Bill Albers are the principals of MPKA, LLC. They have successfully restructured more than $1 billion worth of home builder and developer debt over the last 24 months.

Contact Claire Spence at 281-359-2127 to schedule a call or meeting with MPKA.

Debt Restructuring Helping Builders Survive Today’s Financial Crisis

Reprint from Nation’s Building News – The Official Online Newspaper of NAHB

Debt Restructuring Helping Builders Survive Today’s Financial Crisis

(This is the first in a series of articles on what builders need to know about restructuring their debt and planning for surviving financial adversity in today’s real estate market.)

By David McCain and Bill Albers, MPKA, LLC

Even as the promise of a housing recovery moves closer into sight, debt restructuring is the name of the game for many builders in their attempt to set themselves on a realistic course and survive the worst economic times since the Great Depression.

There is a natural progression of emotions that unfolds as we see our financial world disintegrate around us. Initial thoughts center on protecting the equity we have invested in our projects, and for many this can represent years of profits, time and personal guarantees rolled over from one community to the next.

As real estate entrepreneurs, we understand dirt, real estate and hard assets and tend to shy away from paper stocks and bonds. Unfortunately, in an effort to protect what we have, we continue to make payments against a loan and a project that will never pencil out under current conditions.

Embracing self denial, we can’t believe that our project will fail. With a Herculean effort, we know we can make it succeed. So we embark on the impossible task of seeking take-out capital at full origination value in a market that most likely doesn’t even support half of that value.

Eventually, we begin to capitulate, both emotionally and financially, as we realize that our project just doesn’t support its original value, we have run out of money to support it and we are not going to be able to convince anyone to invest in it despite our best efforts. Ultimately, we are forced to seek help.

Shortcomings of Self Reliance

After realizing that a project is in need of significant financial right sizing and requires debt restructuring, it is only natural to want to attack the problem ourselves. For some, this method can actually succeed. After all, why incur the expense of hiring a professional if you can find the solution yourself?

But for most builders, hiring a professional is the most economically beneficial alternative. Too often, self-help advocates are too emotionally invested in the project, in their personal balance sheet (exposed as a result of personal guarantees) and in their relationship with the bank officer to be successful.

More often than not, the banker with whom we have been friendly for 20 years is replaced by a skeptical work-out officer, or, worse yet, our bank gets taken over and is merged or falls into government control.

As a real estate entrepreneur, we may have spent an entire lifetime making our financial resumes as strong and viable as possible. But in the debt restructuring arena, the weaker the financial resume, the greater is the likelihood of reducing or eliminating lender demands for payments on bloated loan balances or contributions towards personal guarantee obligations. Humility, not hubris, is the winning formula for a successful outcome.

Legal Help

Once we have decided we need help, the next natural inclination is to engage legal counsel. This can often be counterproductive. While some attorneys are exceptional negotiators and deal makers, many are fierce advocates, trained to win at all costs. But regardless of that, as soon as you communicate to the bank that you have hired counsel, all direct bank communication will cease. With a fiduciary responsibility to do so, the bank will hire counsel to speak to your counsel. As a result, your communications, now filtered, will become more guarded and formal (not to mention the fact that you will end up paying the fees for both your counsel and the bank’s counsel).

In most instances, the bank will hire litigation counsel that is well versed in foreclosure and collection. Your counsel will need to be well versed in debtors’ rights and borrower defenses. The game plan will change from workout and restructure negotiations to a battle over taking or keeping title to the property and valuing the property so that your personal balance sheet can be attacked.

Any negotiations from this point forward will likely occur after each litigation milestone is reached and as leverage changes in favor of one party or the other depending on the outcome of each step. At this point, the bank will seek to enforce the four corners of the loan documents by taking title and collecting any deficiency due against the note as a result of the diminished property value. You will absolutely be playing defense in this scenario. Judgments obtained in most states are recorded and are collectable for up to 20 years. In addition, to help execute them most states allow a creditor to take depositions in which you will have to disclose your entire financial life and produce a massive amount of financial documents. As you can easily see, playing out the litigation process is wrought with peril and uncertainty, except for the certainty of cost, time and expense.

No Substitute for Experience

The help that builders need is most likely to come from a debt restructure specialist, who negotiates loan workouts and creative solutions to real estate and financing issues in a controlled and non-confrontational environment. The right debt restructure specialist can be welcomed as a participant by both the bank and the borrower.
The effectiveness of the debt restructure negotiator depends on many factors. The most successful typically possess a unique combination of skills and professional experiences not easily duplicated, coupled with credibility and professionalism.

The ideal attributes of this specialist are first, the lack of emotional attachment to the original real estate project or the balance sheet of the borrower, guarantor or bank.

Next, the ability to evaluate a project from a multitude of perspectives is essential. For instance, the specialist should have lending experience to be able to appreciate and understand banking issues and processes, including: risk-based capital and loan-to-value issues; accounting laws and banking regulations that artificially create opportunities or requirements to take or forgo certain actions; experience and understanding of loan and special asset committees; skills to evaluate the capacity to pay; and the ability to communicate to bankers on this level.

In addition, the specialist should have experience as a borrower, home builder and developer, so there is familiarity with operational, development and entitlement issues, sales and marketing, demographics, appropriate product offerings and mixes, development timelines and the resources required to make a project successful.

Also, the specialist should have experience as a private equity investor, so there is an understanding of the returns investors expect, investment timeline horizons and the relationships within the private equity arena needed to provide a ready stable of available capital to support restructuring solutions.

Finally, the specialist should have legal and litigation experience to be knowledgeable of the differing foreclosure laws and timelines of each state, including insolvency and bankruptcy issues.

And while this mix of lending, developing, investing and legal experiences is ideal, it still needs to be coupled with the ability to analyze potential resolutions from all four perspectives, create a solution and then mediate a fair and acceptable resolution for all. There is no substitute for experience. Your vetting process should include a careful review of candidates’ backgrounds and experience in the four areas discussed above. Choose debt restructure specialists that have a proven track record of results in today’s environment.

The next article in this series will describe the debt restructuring process, realistic expectations, restructure methods and potential outcomes.

In future articles, the debt restructure specialists of MPKA will delve into case studies of recently transacted deals.

David McCain and Bill Albers are the principals of MPKA, LLC. They have successfully restructured more than $1 billion worth of home builder and developer debt over the last 24 months.

Please call Claire Spence at 281-359-2118 to schedule a call with David McCain or Bill Albers.