Commercial Real Estate Defaults, Workouts, and Reorganizations
Free PodCast
Listen to "Analyzing the Default and the Loan Documentation - 2006" from the program Commercial Real Estate Defaults, Workouts, and Reorganizations originally presented April 20-22, 2006
What You Will Learn
Today's real estate market is in turmoil. This annual advanced course of study, comprising more than 16 hours of instruction, is the conference for real estate practitioners who must abreast of the latest legal developments. It is designed for attorneys and other real estate professionals who represent real estate lenders, landlords, tenants, and others involved with nonperforming real estate loans and leases to financially troubled tenants.
The course is taught by a faculty that has dealt with defaulted real estate through boom and bust and has extensive practical experience in dealing with problem real estate and tenants in financial trouble, both in state and bankruptcy courts and across the negotiating table. In addition, all faculty members have expertise in real estate finance and lease documentation. The faculty includes a U.S. Bankruptcy Judge and attorneys skilled in restructuring and liquidating tenancies and real estate ownership. Their experience goes beyond the borders of the United States.
This practical course is developed against a background of current bankruptcy court practice and the applicable law as it exists and continues to develop. Ample opportunity is provided for registrants to participate by submitting questions, problems, and comments, both in advance of and during the program. The faculty integrates its responses to registrants’ written questions into the course discussion and also provides designated times during the course to address questions.
Planning Chair
John D. Hastie, Phillips Murrah, P.C., Norman, Oklahoma
Faculty
Jill D. Block, Orrick, Herrington & Sutcliffe LLP, New York, New York
Richard F. Broude, Richard F. Broude, P.C., New York, New York
Thomas F. Kaufman, Hunton & Williams LLP, Washington, D.C.
Margaret A. Mahoney, U.S. Bankruptcy Judge, Southern District of Alabama, Mobile
William G. Murray, Jr., Orrick, Herrington & Sutcliffe LLP, San Francisco, California
Additional faculty to be confirmed
Program Schedule
THURSDAY, MARCH, 5, 2009
8:00 a.m. Registration and Continental Breakfast Webcast
Webcast Segment A
9:00 a.m. Introductory Remarks
9:05 a.m. Analyzing the Default and the Loan Documentation
Identifying the cause and extent of the default, potential parties in interest and their objectives, probable outcomes, and available assets; document assembly, review of the closing documents and related material, conferences with client personnel, position review, analysis of possible personal liability; third-party exposures, multiple liens, and the effect of tenant financial problems; analysis of collateral; viability of single purpose entities; affiliates of single purpose entities; effectiveness of the bankruptcy remoteness of the borrowing entity; analysis of securitized document remedies; liabilities of the parties to the pooling and servicing agreement; reviewing claims against and remedies available to junior lenders; establishing the priorities of multiple tranches; consideration of client objectives, constraints, and relevant legal limitations
10:30 a.m. Networking Break
10:45 a.m. Negotiating and Documenting the Restructure
Approaches to restructuring; pre-negotiation agreements and disclaimer letters; negotiating strategies and their impact on the participants; holding arrangements during workout negotiations; analyzing the positions, exposures, and potential workout benefits of various parties; dealing with special servicers; cash flow arrangements and traps; forbearance and moratoriums; liability limitations, releases, and realizations of collateral; future advances; rating agency requirements and approvals; risks of substantive consolidation; use of administrative consolidation; tax considerations; standstill agreements; bankruptcy risks; use of escrows and reserves; environmental concerns; lender liability exposures arising from negotiations; third-party involvement; title insurance considerations; management pending the workout closing; negotiation formats, performance schedules, "drop dead" dates, interim reporting requirements, and access agreements; default notices and acknowledgments; reinstatement agreements; foreclosure agreements and modification agreements; asset transfers; recoupment devices; inter-creditor agreements; performance "give-back" and earn-out agreements; subordination agreements; conditional releases from liability; title insurance policies and endorsements; anticipating post-modification bankruptcy issues (bankruptcy-related provisions of workout agreements); dealing with subordinate liens, related assets, and executory obligations; cash flow provisions; limitation of remedies; payment of legal fees and other workout costs; releases, indemnities, guarantees, and additional collateral; control of rents and receivables and lender dealings with borrower's tenants; third-party claims; payment of employees, franchise fees, and taxes; realization under letters of credit; legal and other professional opinions; use of escrows and reserves; lock box and other security devices; post-restructure management; use of workout entities; reporting requirements; management incentive compensation
12:30 p.m. Lunch Break
Webcast Segment B
2:00 p.m. Construction Loan Defaults
Monitoring a construction loan; troubled situation strategies for borrowers, lenders, contractors, and sureties in for-sale and investment-property projects; protection and assertion of rights under bonds; dealing with contractors, tenants, condominium and home associations, and contract purchasers; strategies in restructuring the loan for unfinished projects, including escrow agreements, out-of-balance provisions, collateral mortgages, and other additional security;contractor and investor involvement in workout joint ventures; enforcement of completion guarantees and performance and payment bonds; protective provisions and procedures for construction loan documentation; mechanic's lien issues; title insurance claims
2:30 p.m. Defaults Involving Insolvent Financial Institutions
FIRREA revisited; superpowers of federal agencies; the D’Oench Duhme Doctrine, its limits and possible preemption by 12 U.S.C. § 1823(e); federal holder-in-due-course status; 12 U.S.C. § 1825 (b)(2) Avoidance of Enforcement Actions; 12 U.S.C. § 1821 (j) Avoidance of Restraints; repudiation of “burdensome” contracts; repudiation of real estate contracts; actions against institution affiliated parties; use of pass-through receiverships; determination of claims; risks to attorneys representing the institution and attorneys asserting borrower claims
3:30 p.m. Networking Break
3:45 p.m. Lender and Third-Party Liability
Theories of liability; negotiation and litigation strategies; guarantors and the anti-deficiency statutes; waiver of defenses by guarantors; letters of credit; guaranties of payment and of collection; collateralized guaranty agreements; limited guaranties; guarantor defenses; novel defenses (e.g., a defense asserting that the financial crisis in the credit markets is a force majeure event, and a defense claiming that the sale of interests in a construction to lenders having no real estate lending experience resulted in a dysfunctional lender group)
4:15 p.m. Conveyances in Lieu of Enforcement
When to use them; negotiating strategies; title considerations and title insurance coverage; settlement agreements; conveyance documents; merger; representations and warranties; releases from liability; lease termination agreements; transfer of tenant property
4:45 p.m. Enforcement of Creditors' Remedies under State Laws; Multistate and Multinational Proceedings
Pre-foreclosure rights of mortgagee; mortgagees in possession; relative rights of multiple mortgagees; title insurance policy exclusions and endorsements; economic waste; election of remedies; deficiency judgment proceedings; mezzanine loan defaults; foreclosure of mezzanine loan collateral; one-action and similar rules; receiverships; asserting liens and security interests against multistate collateral
5:15 p.m. Questions and Answers
5:30 p.m. Adjournment for the Day; Networking Reception for Registrants and Faculty
FRIDAY, MARCH, 6, 2009
8:30 a.m. Networking Session
Webcast Segment C
9:00 a.m. Overview of the Bankruptcy Court System
The bankruptcy alternatives; Chapters 7 and 11; voluntary and involuntary cases; partnership cases; the role of committees
9:45 a.m. Adequate Protection in the Real Estate Context
The automatic stay; use and sale of real estate during a pending case; rental income as cash collateral; debtor-in-possession financing and super priority; the under-secured creditor and cost of delay; prospect for effective reorganization; single asset real estate; environmental obligations
10:45 a.m. Networking Break
11:00 a.m. Chapter 11 Reorganization Plans
Who proposes the plan; the plan contents; nonrecourse debt; impairment of claims; voting and requisite majorities; confirmation standards and cramdown; the absolute priority rule and the new value exception; single asset real estate; discharge of third parties; availability of general partner's assets; post-confirmation proceedings; Chapter 11 liquidations
12:30 p.m. Lunch Break
Webcast Segment D
2:00 p.m. Preferences and Fraudulent Transfers
Sections 547 and 548 of the Bankruptcy Code; Uniform Fraudulent Transfers Act; reducing the lender's exposure; title insurance exclusions and endorsements
2:30 p.m. Leases and Other Executory Agreements in Bankruptcy
Preservation and transfer of the debtor’s leasehold interests; leasehold interests as an asset of the debtor’s estate; the lessor’s need to act promptly and the steps to be taken; effect of rejection by lessor or lessee; limitation on lessor’s claim under a rejected lease; assumption and assignment; shopping center provisions; pre-qualification; Reciprocal Easements Agreement (REA) rejection issues; enforcement of operating covenants; appeals, stays, and the mootness doctrine; development phase tenant bankruptcies; effect of tenant bankruptcy on project financing and co-tenancy requirements; bankruptcy threats by prime tenants and co-tenants; amendments to lease agreements; threat of sale as a negotiating device; problems associated with the insolvency of a sandwich lessor; rights and risks of a subtenant; transfers of tenant security deposits and trade fixtures; bankruptcy-focused drafting and structuring considerations in negotiating leases; shopping center issues
3:30 p.m. Networking Break
3:45 p.m. Sales of Real Estate in a Bankruptcy Context
Auction sales as a reorganization and liquidation device; sales free and clear under Section 363 of the Bankruptcy Code; bidder pre-qualifications; pre-negotiated sales; overbid requirements; specific property problems, including broken condominium developments, burdened retail pads, failing office buildings, and empty hotels; use of stalking horses; allowable break-up fees; negotiating strategies; risks of sale and plan confirmation
4:45 p.m. Bankruptcy Filings by Solvent Debtors
Continuing development of the "Good Faith Doctrine"; use of bankruptcy proceedings to avoid pending litigation, unprofitable obligations, burdensome leases, inability to replace existing financing and other financial distress; restructuring a retailer through bankruptcy; the necessity for DIP financing
5:15 p.m. Questions and Answers
5:30 p.m. Adjournment for the Day
SATURDAY, MARCH, 7, 2009
8:30 a.m. Networking Session
Webcast Segment E
9:00 a.m. Ethical Concerns Incident to Representing Debtors and Creditors
Analysis of ethical issues incident to asset protection planning; ethical issues relevant to representation of debtors, lenders, and third parties affected by real estate defaults; FIRREA liability of Institution Affiliated Parties; obligations of restructure counsel in the “zone of insolvency”; failing the bankruptcy tests for “disinterestedness”; conflicts of interest and other issues in commencement and continuation of representation
10:00 a.m. Recent Developments
Impact of the Emergency Economic Stabilization Act of 2008; the future of CMBS and mezzanine financing; the required loan to value ratio after the market collapse; the impact of participation in the TARP on the ability and willingness of a lender to restructure defaulted real estate loans; when and how acquisitions of raw land can be financed in the future (the increased importance of purchase money financing); what a borrower can expect if a real estate loan is subject to management by the Financial Stability Oversight Board; opportunities for acquisition of defaulted real estate projects
10:45 a.m. Networking Break
11:00 a.m. Recent Developments (continued)
Maturity defaults in CMBS facing portfolio lenders in 2009 and 2010; the effect of re-pricing of risk and increasing capitalization rates on values and financing; the long term outlook for sources of real estate finance; the need for additional equity; the impact of the retail meltdown
11:30 a.m. Questions and Answers
12:30 p.m. Adjournment
Total 60-minute hours of instruction: 16.25, including one hour of ethics
Suggested Prerequisite: Limited experience in legal practice in subject matter
Educational Objective: Acquisition of knowledge and skills to develop proficiency as a practitioner; maintenance of professional competence as a practitioner; provision of information on recent legal developments
Level of Instruction: Advanced
Here's what registrants have said about this course:
"The format of the presentation with continued interplay among the panel was very effective. The manner of taking questions was also effective. The opportunity to take part in an ALI-ABA course was valuable to me as a practitioner and as a presenter and coordinator of legal seminars for our company."
"John Hastie brings an amazing amount of knowledge regarding all areas covered. His ability to provide historical perspective is invaluable."
"Altogether, excellent program with some practical suggestions I will recommend our firm implement immediately."
"Enjoyed, learned from and appreciated the seminar. The interaction of the faculty made for a better method of educating the attendees. I appreciated not having 'talking heads' reading from the course materials."
"John Hastie continues to be a wonderful resource for practitioners. I am hopeful he will continue to make himself available at ALI-ABA CLEs. What an incredible legal scholar."
"I really appreciated the level of instruction. I have not practiced in these areas for several years and found the willingness of the panelists to give a clear concise background in basic concepts very helpful. They did a good job of not assuming a level of knowledge."
"I thought the course was excellent. Mr. Hastie was an excellent lecturer and moderator. The materials, which are approximately 1,000 pages, promise to be chock full of helpful information."
"I particularly enjoyed the lively banter of the faculty. Rather than detract from the substance of the topics, it enhanced it because it illuminated each speaker's unique perspective and made the discussion interesting and entertaining. More importantly, the debate between and among the participants took the two dimensions of the written materials, and made them 3-dimensional. Kudos also for the very high quality of expertise of each faculty member. Well done!"
"All presenters were very approachable and you could tell from the presentation that despite their practice focus on one side or the other in workouts, they made every effort not to be biased in the presentation. I would recommend this course to others."
"The balance between theoretical and practical was very good. The format and quality of the panel allowed for discussion of issues and presentation of varied points of view which gave me insight for some issues I have not encountered."
"John Hastie is a national treasure."
"Great CLE. In my 9 years of practice, this was the best CLE on the subject."
