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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.

Case Study: Developers Climb Out of Debt and Live to See Another Day

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

(This is the fourth 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 – Business Alliance Partner with Joseph Chris Partners

You have made the decision to hire a debt restructure specialist, and the process begins.
From the time you hire a debt restructure specialist to the time you reach a settlement can take as little as 60 days or as long as a year, but the process is typically completed within three to six months. The following case studies were performed within this time frame.

Case Study — Great Reputation Builder
A builder on the east coast of Florida for more than 20 years and the winner of numerous awards, Great Rep had three active but stalled communities and was facing $62 million of debt, all personally guaranteed by Founder.

Great Rep bought and developed its own land, and built, marketed and sold its own product. Like many small to mid-size builders, Founder spent 20 years rolling nearly all of his profits from completed deals into new deals. When MPKA met Founder, $18 million of accumulated profits, his life savings, had been used as equity seed capital for Great Rep’s three current communities. Unfortunately, while Great Rep, Founder and the banks were focusing on ways to extend each of the three loans supporting the three communities, none of them were addressing the real issue, which was that all of the communities were severely underwater, with the loan amounts far exceeding the property values.

At this stage, with the loans in default and discussions at an impasse, MPKA was engaged by Great Rep and Founder to negotiate with Great Rep’s banks. Following are case studies involving these negotiations.

Loan One was comprised of more than 150 finished single-family lots and 20 completed inventory homes. Great Rep owed approximately $14 million on the lots and another $10 million on unsold inventory homes and models. The bank’s release prices were $100,000 per lot and $525,000 per home. The total debt on Loan One was over $24 million and Great Rep had invested $6 million of equity in support of the development. This luxury product was well conceived and constructed. Seventy homes had been completed and delivered, but the project was completely stalled, with the inventory homes the result of cancelled contracts.

MPKA coordinated a structured transaction that allowed Great Rep to liquidate inventory, continue operations, avoid a large deficiency and recoup a portion of its original project equity. First, MPKA negotiated a deeply discounted debt purchase on the lot note using capital from newly found Financial Partner. The $14 million debt was purchased for $4 million. Additionally, as a prerequisite to the loan sale, Financial Partner purchased Founder’s guarantee. It next agreed to waive any potential deficiency claim against Founder and released him from any future guarantee going forward. In addition, by structuring the sale as a note purchase instead of a property short sale, Great Rep potentially avoided phantom income debt forgiveness of nearly $13 million and tax obligations of more than $4 million.

To dispose of the inventory, MPKA partnered with an auction company and sold all 20 homes on an absolute basis tendering all proceeds net of closing costs to the bank in total satisfaction of the $10 million inventory note. Lessons learned from Great Rep’s largely unsuccessful attempt to auction off the properties a few months earlier helped bring the superior results. Only four homes were sold in the first auction, at an average price of $240,000. In the auction of the remaining 20 homes, the average price exceeded $310,000. In addition, despite the challenges of the ongoing credit crisis, MPKA leveraged its mortgage lending relationships and expertise to arrange for a consumer mortgage lending company to pre-approve the community and finance purchases at the auction.

Great Rep was allowed by Financial Partner to continue to market, sell and build homes on the purchased lots as a fee builder. In addition, Great Rep was given a profit participation position after specified return hurdles to Financial Partner.

Loan Two was originally for a $27 million development comprised of 60 single-family lots and 21 boat slips on the intercoastal waterway, with the anticipated construction of homes valued between $900,000 and $3 million. It took three years just to obtain the boat slip permits. The loan was comprised of $21 million in acquisition and development debt and approximately $6 million of Founder’s equity. Less than 5% of the final infrastructure work needed to be completed — in 90 days at an estimated cost of about $1 million. With the evaporation of the local market and personal capital, Great Rep found itself unable to make its loan payments, at which point the bank stopped funding construction. The loan went into default, construction was halted and the bank initiated foreclosure. MPKA coordinated a structured transaction that allowed Great Rep to continue operations, avoid a deficiency and have an opportunity to recoup equity and earn a fee.

First, although the bank had received two recent appraisals of the property greater than $17 million, MPKA knew it was under regulatory pressure to liquidate assets and got it to accept a discounted note purchase price of $10 million. On behalf of Founder, MPKA also negotiated a release of the guarantee and deficiency claim with Financial Partner, the note purchaser. By structuring the transaction as a note purchase instead of a short sale, Great Rep was able to avoid $11 million of debt forgiveness phantom income and a tax obligation of $4 million.

Great Rep remained in the deal, completed the infrastructure with capital from Financial Partner, marketed the lots for sale and received a management fee and profit participation from Financial Partner.

Loan Three was for a $23 million development comprised of 85 luxury town homes just blocks from the Atlantic Ocean in a beautifully revitalized pedestrian urban infill location. While all of the site work and pads were finished, only one seven-unit building was completed and only two units were sold. Original selling prices ranged from $500,000 to $875,000. The remaining construction loan was $17 million, and Founder had invested $6 million. MPKA negotiated a transaction that allowed Great Rep to continue operations, avoid a deficiency and earn fees.

MPKA convinced the bank to accept $8 million on a discounted note purchase. Two current bank appraisals valued the collateral at $15 million in its partially completed state, but MPKA convinced the bank that the appraisal was far too high because it overestimated the units’ market absorption and their ultimate selling prices. As part of the transaction, MPKA was able to negotiate the elimination of any potential deficiency against Founder by structuring the deal as a note purchase instead of a short sale. As a result, Great Rep avoided phantom income debt forgiveness of $9 million and $3 million in taxes. In addition, MPKA was able to secure a commitment from a third-party lender to provide a construction revolver to build out the remaining town home units despite the constrained credit market. As with its two other deals, Great Rep remained engaged as a fee manager with a profit participation.
Case Study — Direct Equity, Debt Restructure and Tax Incentives

The developer of active adult communities in central Florida for nearly 100 years, Fourth Generation Builder had five active communities with slowing sales volume. None of Fourth Gen’s $25 million in project debt was guaranteed. In addition, Fourth Gen’s bank had issued a short-term debt — secured by Fourth Gen’s profit sharing plan — of $18 million.

At the recommendation of its lender, Fourth Gen engaged MPKA to restructure its debt, raise capital and review expenses just 14 days before the end of the company’s fiscal year. About to run out of cash within 90 days, Fourth Gen needed a survival plan that would provide more than $10 million. After reviewing Fourth Gen’s balance sheet, assets, operations and expenses, MPKA provided a solution that provided in excess of $17 million of savings, cost reductions and capital.

In Fourth Gen’s largest community, it owned 150 finished single-family lots and another 450 entitled lots. The finished lots had book value of $8 million, or $55,000 per lot. Of the few sales it had, Fourth Gen was able to sell home buyers finished lots on which it would build within two years for between $80,000 and $150,000. Fourth Gen’s bank had loaned $5 million, or $35,000 per finished lot. The loan was performing. MPKA convinced the bank to write down the loan to $2.9 million, or $20,000 per lot, and then accept a deed in lieu of foreclosure from Fourth Gen. As a result, Fourth Gen was able to show a capital loss of $2.2 million and consequently recapture $1 million in previously paid taxes under FAS 109 rules. The bank did not want to own the lots and was facing its own fiscal year-end 30 days later, which made it a highly motivated seller. Within those 30 days, MPKA negotiated the purchase of the lots at the written down value and it subsequently marketed them, several of which were available to Fourth Gen on an escalating option basis.

This survival plan enabled Fourth Gen to stay in business in its original ownership for two more years. However, the debt burden of the company’s profit sharing plan and land loans ultimately became too great. Accordingly, MPKA brought in a new set of investors who purchased most of the remaining assets, assumed the liabilities for the homes under construction and the employee costs, and restarted Fourth Gen under a capital structure that has allowed it to continue to build profitably to this day.

The final article in this series will discuss potential moderating factors within the confines of the debt restructuring arena and review some of the lessons that have been learned.
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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 281-359-2127 to schedule a conversation with David McCain or Bill Albers.

Case Study: Developer is $300 Million in Debt and Sees $100 Million in Equity Disappear

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

Case Study: Developer is $300 Million in Debt and Sees $100 Million in Equity Disappear

(This is the third 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

You have made the decision to hire a debt restructure specialist, and the process begins.
From the time you hire a debt restructure specialist to the time you reach a settlement can take as little as 60 days or as long as a year, but the process is typically completed within three to six months.  The following case study was performed within this time frame.

Case Study One — Strong History Development Group

A developer for more than 40 years, Strong History had 50 active developments with cumulative debt exceeding $300 million, all personally guaranteed by Founder.

Founder’s personal balance sheet consisted of a few hundred thousand dollars in cash, with over $100 million of stated real estate equity spread over the 50 active developments.  Unfortunately, a review by MPKA of the company’s projects and balance sheet found that the vast majority of the project finance loans were underwater (i.e., the loan amounts were higher than the projects were worth) and that Founder’s $100 million in equity was nonexistent at current real estate values.

MPKA was subsequently engaged to negotiate with Strong History’s banks.  Following are some of the specifics in these negotiations.

Large National Bank

Large National Bank had five project loans with Strong History totaling over $40 million located in Florida, North Carolina and South Carolina.  MPKA negotiated a global settlement with the bank with the condition that each of the five debt restructure workouts was contingent upon the other:

Loan One had an unpaid principal balance of $5.3 million.  The project consisted of 210 entitled single-family lots, of which 110 were developed. When the loan was originated in early 2005, Strong History negotiated a finished lot takedown agreement with Large Public Builder at $70,000 per finished lot. When the market collapsed, Large Public Builder walked away from the property.  With no sales, Strong History defaulted on the loan and Large National Bank filed a foreclosure action.  The property design was fair to good but the location was fair to poor.  Vandals repeatedly ravaged the utility boxes, fences and light poles.

Several appraisals later, the property was eventually determined to have a value of $1.9 million.  Neither Strong History nor Founder or any investor had interest in continuing with the property.  Ultimately, MPKA convinced Large National Bank to take the property back in a deed in lieu of foreclosure transaction conditioned upon Large National Bank releasing Strong History and Founder from the $3.4 million deficiency.

Loan Two had an unpaid principal balance of $6.1 million.  The project consisted of 250 entitled single-family lots, 110 of which were developed, and 200 entitled undeveloped multifamily lots.  The loan was originated in 2007.  Several large national builders had finished lot option contracts ranging from $50,000 to $70,000 per lot, depending on lot size.  The project was in a good location, but all of the large national builders walked from their option contracts.

Loan Three had an unpaid principal balance of $14 million.  The project consisted of 2,000 entitled single-family units, of which 400 were developed.  Three large public builders had lot contracts with Strong History.  While the builders did not walk from the property, each significantly curtailed the pace and price of its lot purchases.

Both Loan Two and Three were in default and in foreclosure proceedings.  Large National Bank received current appraisals totaling $15 million against a total debt of $20 million. MPKA arranged a transaction in which a private equity group purchased the two loans from the bank for $10.5 million, with the condition that the bank forgive all of the nearly $10 million in loan deficiency against Founder.  In addition, with the bank’s consent, Strong History remained a participant in each of the loans on a management and development fee basis, and with a profit participation hope certificate after certain returns were achieved by the private equity group.

Loan Four had an unpaid principal balance of $9.9 million.  The project consisted of more than 200 acres of mixed-use development, with 300 entitled lots, half of which were developed, 50 acres of developed commercial land and 30 acres of undeveloped commercial land.  The property was in a good location and was well positioned.

Loan Five had an unpaid principal balance of $3.5 million.  The project consisted of nearly 400 entitled but undeveloped single-family lots, many of which fronted the intercoastal waterway.

Both of Loans Four and Five were in foreclosure, with no debt service payments made for more than 12 months as both loans had matured. Appraisals on these two loans varied, however; the lowest valued appraisals totaled over $30 million against nearly $13 million debt.  MPKA negotiated a loan extension on each of the two loans, essentially convincing Large National Bank that in the absence of a takeout lender, the most reasonable chance for repayment was to extend each loan.  They were both extended for 24 months with a 12-month extension option.

Large Regional Bank

Large Regional Bank had four project loans with Strong History, totaling over $25 million, located in Florida, all personally guaranteed by Founder:

Loan Six had an unpaid principal balance of $3.1 million.  The project consisted of 75 completed single-family lots.  Two local builders had been buying lots at $80,000, but each walked from the community.  The project and the lots were fair to good and recent appraisals suggested a value of $1.5 million.

Loan Seven had an unpaid principal balance of $7.6 million.  The mixed-use project consisted of 265 single-family lots, 225 multifamily lots and 25 acres of office and retail space.  While entitled, none of this project was developed.  A national public builder had an option contract at $70,000 per finished lot but walked when the project stalled.  At loan origination, the project was appraised at over $18 million.

Loan Eight had an unpaid principal balance of $10.5 million.  The finished project consisted of 300 single-family lots but was in a poor location. Two national public builders walked from lot option contracts of $45,000.  Recent appraisals suggested a value of less than $4 million.

Loan Nine had an unpaid principal balance of $4.2 million.  The project consisted of 165 finished single-family lots, optioned to two regional builders at $42,000 per lot.  Each of the two builders slowed their lot takedown schedules to one lot per month.
All of Large Regional Banks’ loans with Strong History were in default for nonpayment and in foreclosure.  MPKA negotiated the packaged discounted sale of these loans for $10 million.  In addition to eliminating the $15 million personally guaranteed deficiency of Founder, MPKA negotiated favorable loan purchase terms.  The purchaser put $1 million cash down and received a loan back from Large Regional Bank of $9 million, three years interest only at prime plus 1%, totally non-recourse to the purchaser, and Founder was eliminated as a guarantor on the new loan.  In addition, with the banks’ consent, Strong History stayed involved with each of the projects on a management and development fee basis, and as a profit participant, after certain investment returns were achieved by the new investor.
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The next article in this series will continue to examine actual 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.

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.