What is important to understand, according to Jeff Pitcher, a partner at Ballard Spahr LLP, is the ramp-up in the special servicer load. “The special servicers and asset managers I talk to now have 40 to 70 assets that one person has got, so they don’t really have a lot of time to focus on any particular one asset,” he said. “Six to eight months ago, they weren’t as willing to do as much loan modifications, but now they are, but you have to have a good proposal going in.” He added: “When you run out of time, you are going to get foreclosed on. That is what I am seeing.”

Panelists switched gears a bit to discuss bidding on FDIC notes, and Mosich pointed out that “you are buying those notes with a ‘the worst can happen’ type mindset.” He explains that when looking at bank files, “you might be lucky to have any information like a tenantive map or three-year-old appraisal and some sort of entitlement document and that is it.” In short, it is very tough to buy from the FDIC, panelists said, and yet they pointed out that there still has been some aggressive bidding on them. “The other thing we are seeing,” Mosich said, “is that it is taking a significant amount of time for the buyer to figure out what they have bought, which is a tough road to go down.”

From a tax perspective, Thomas Alvarez, a senior manager at Reznick Group PC, explained that one thing in this environment that would be the “bad and the ugly” in the “good, the bad, and the ugly” scenario is phantom taxable income. “If you don’t structure the deal the right way, it is scary stuff,” he said. “It is really crucial to cross your ‘I’s’ and dot your ‘t’s’.”

When discussing typical workout strategies and options, panelists pointed to: maturity date extension; additional funding; interest rate reduction/amortization relief; principal balance reduction; A/B note split; relief from personal guaranty; white knight/rescue financing; short sale; deed-in-lieu of foreclosure; foreclosure; and bankruptcy.

The one strategy or option that Krauch doesn’t like on the list is bankruptcy. “We are on the lending side. We don’t want to own these things,” he said. “What lenders want is to first get paid off, and if that can’t happen, they want to get further away from the fire.”

Alvarez explained the potential risk of buying discounted paper. “If an acquirer of distressed debt later negotiates and knocks it down, well, it sounds great, but that creates income. The acquirer then has phantom income,” he said. “The rules that govern this area are a mix of the original discount rules that were written before the distressed debt market.” He added that “Unfortunately, unless it gets resolved, there can be a big surprise with a significant tax bill.”

When discussing how to access deal flow as an investor, panelists pointed out a lot of scenarios that do not work. Mosich said to not call up a chief workout person at a bank because they get 100 calls a day. Instead, he said, “Focus on assets that are listed through brokerages where there is a clear mandate to sell.”

Pitcher advised the audience to not waste their time. “Don’t call the attorney to pass along the information because it never works.”

When a member from the audience asked if it is smart to reach out to the existing borrower to see if they need an equity partner since they already have contact with the bank, panelists agreed that it wasn’t a bad idea. But overall, they said it is a lot about being in the right place at the right time.

Other key panelists at the half-day event included: David Barksdale, partner and co-chair of distressed real estate initiative at Ballard Spahr; Jeff Giller, managing partner and chief investment officer at Clairvue Capital Partners; Jim Hibbert, a senior manager at Reznick Group, Peter O’Keefe, senior vice president at Lowe Enterprises Inc.; and Dean Waldt, a partner at Ballard Spahr.