"Servicers don't have to live with a decision," Wright says. "Their money isn't at risk. They're incentivized with fees. The longer they control an asset, the more likely they'll earn some form of transaction or modification fee. They don't report to regulatory agencies and they don't have a loss position."

He recently had a restructure on a 144-unit apartment in St. Petersburg, FL, and the borrower offered to pay off and convert the loan to interest only. The borrower offered to pay $3.2 million on a $5.4-million note, but the special servicer said no. "If you were dealing with a balance-sheet lender, they'd take the deal," Wright says.

The way to deal with banks is to be forthcoming with information and have a strong, last-shot plan, he says: "You have to make the proposal: ‘Here's the modification I need, here's how I can support it and how I know it's going to work. Also, if I default, here's a nice tidy way to get access to the fee simple.' Banks will do a deal like that."

The secret to dealing with servicers, Wright says, is offering cash. "As a starting point, offer a modification fee, offering a point or two would be a major push in your direction. A main driver with a special servicer deal is going to be what the company's financial incentive is, or even what an individual's bonus structure is," Wright says.

In fact, any type of cash brought to the table is welcome in a restructure. Of course, there's the obvious irony that if a borrower had cash, he wouldn't need a restructure. But any promise of a cash guarantee, discounted management fees or some meaningful asset contribution is going to advance the negotiation.

Even if the borrower has no money to offer, a well-researched plan for success can save a negotiation. "You have to be armed with information," Wright says. "You have to give them a proposal and projections, illustrating how you're coming to your conclusion."

Borrowers must look at the negotiations from the lender's point of view. That person, in most cases, has a lot of work to do in writing up the position recommendation and advocate for that position to a credit committee to approve the restructure. Looking foolish with an unprepared borrower makes the representative look foolish.

Ann Hambly, founder and CEO of Grapevine, TX-based First Service Solutions, says she has simple rules for borrowers to follow when trying to restructure a loan: 1) Tell the lender immediately when there is a problem; 2) Know who you're dealing with at the table; 3) Know what that lender can offer you; 4) Decide what's the best plan for you; and 5) Find something you can bring to the table.

With conduits and other complicated structures, "the person who will control the destiny of the restructure may be someone the borrower may never have spoken to while the loan was being formed and performing," Hambly says.

A borrower who can bring revenue to shore up a bad loan will get a better deal, Hambly says, which is why in December she formed a new firm, First Equi-Debt Solutions, designed to help borrowers with equity and debt to pay off non-performing loans. The operation was able to help on a recent Dallas deal where a borrower had a $29-million loan on a single-tenant office building. When the tenant moved out, the borrower had an empty building and too much debt, but the servicer was willing to arrange a pay-off of $11 million. Of course, the borrower had to come up with $11 million, which is where Hambly's new company stepped in and provided the funds.

But it's not solely about equity. It's also about ethics. Lender Ben Margoles, senior vice president of Seattle-based Washington Holdings, says he's seen many borrowers lose restructuring deals because they thought dirty tricks would work in their favor.

"I've seen a lot of borrowers test the willingness and ability of a lender using inflammatory language and direct or veiled threats of bankruptcy," he tells Distressed Assets Investor. "That heavy-handed approach threatens credibility and could force a foreclosure or sale, which in turn could bring a more difficult entity than the lender into the mix." Margoles' firm owns and manages real estate in the Pacific Northwest and provides loans. He says he agrees with the above requirements, that each side needs to know each other's background and that a borrower bringing something to the table will always bode well for the negotiation. "Even the lender has to know who they're dealing with," he says. "It is key to figure out who really has the checkbook. In a restructure, a lender is typically looking for some infusion of new capital, whether to cover additional interest or to pay for capital expenditures or leasing requirements."

Margoles agrees that homework is required, for both the borrower and the lender "A lender has to be aware of any liens, lawsuits or other losses that the asset is dealing with to understand the scope of the problem," he says. "A lender is also going to try to secure that cash flow, to control the assets that are coming in. A lender doesn't want there to be leakage to the borrower, so that if the restructuring deal doesn't bear fruit, the borrower has this large position to work from if there's a legal battle." Margoles agrees that homework is required for both the borrower and the lender. "A lender has to be aware of any liens, lawsuits or other losses that the asset is dealing with to understand the scope of the problem," he says.

He says the most critical position that a borrower can work from is having, and keeping, strong credibility with a lender. "Whether it's cash or a great business plan, if a borrower can make a compelling argument, then a lender can get onboard," Margoles says. "If you have a well-researched business plan and can show that there's likelihood that a deal can get done," it ups your chances of success.

All three experts we spoke with agreed that there is likely much more restructuring work coming, since more than $1 trillion in loans is expected to come due in the next five years. "A lot of people predict there won't be enough debt available to pay these off ," Hambly says. "There should be another surge in workout activity." Other than the multifamily market, which is booming, the rest of the commercial property market will take a long time to recover, Wright says. However, there is a silver lining. "There's going to be a lot of work for servicers," he says, "for providers of data such as engineering, environmental and appraisal reports, for brokers needed to help liquidate properties and for managers to come in and run the asset until it's sold. There's never been a greater opportunity to purchase real estate, and there's never been a greater need for real estate expertise."

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