Philadelphia Real Estate Attorney Fredrick Masters' Article on Commercial Real Estate Loan Sales Published in Mann Report

An article written by Fredrick H. Masters — a shareholder in the Real Estate Section of Buchanan Ingersoll & Rooney's Philadelphia office — was published in the March 2010 edition of the Mann Report.

As explained in the article, titled "Commercial Real Estate Loan Sales From A Lender's Perspective," "Expectations for 2009 were that a large volume of defaulted commercial real estate, or the debt encumbering the same, would be available for purchase at discounted prices. Reality did not mirror expectations, despite falling values from increased vacancies, reduced rents and lack of financing. As a result, 'pretend and extend' became the by-word of commercial banks and borrowers, with banks hoping to increase rates, obtain a paydown, add collateral, increase (or create) guaranty liability or a combination of the same."

Masters explained that "the enormous amount of cash available to purchase distressed debt, the failure of the market to improve, and the amount of distressed debt being sold by the FDIC and CMBS special servicers may soon pressure commercial banks to dispose of loans secured by distressed debt."

Masters went on to advise banks on what should be taken into consideration when lending, as well as explains what the purchaser should be aware of. "In deciding how much of a discount the bank is willing to take, the bank needs to consider the collateral realization risks and costs and the value of immediate cash from the sale. The terms of sale need to be considered along with the purchase price. … The purchaser should assume the bank's obligations under the loan documents accruing from and after the sale."

Masters concluded, writing, "The purchaser should sign a confidentiality agreement. … The bank should be careful not to disclose confidential underwriting or similar financial information regarding the borrower or the guarantor."