Tranche warfare: Lenders tussle for control of distressed real estate
Real Estate partner, Neil Shapiro, was quoted in The Real Deal discussing the state of distress in the real estate finance space and how commercial real estate lending is a different world than equity. CRE has its own complex rules about who gets paid when — and who decides how it all shakes out.
The article noted, "Such a barrage of litigation has yet to recur, but attorney Neil Shapiro at Herrick, Feinstein sees signs that things are headed that way — not hired muscle, like in gangster films, but notices of valuation changes."
"You don’t send in goons when you’re a lender looking to take control," he said. "There’s a lot of that going on now, where parties are asserting there’s been a change in the controlling class."
The Real Deal continued, "One problem, Shapiro said, is that so few property sales are happening that appraisers lack data to determine what a portfolio is worth. The value ultimately decides who is in the controlling class, which is important because bondholders may have conflicting motivations."
Neil added that the market is moving so fast that control of a workout can change quickly. "Anybody who is in the controlling class today," he said, "giving up [that position] is giving up a lot of control over the recovery of their investment."