Workouts & Recapitalizations
CapHarbor Realty Advisors, LLC's ("CRA") team members are well experienced in arranging and managing loan workouts and property recapitalizations. CRA maintains excellent working relationships with all of the nation’s leading commercial and multifamily loan servicers and special servicers. Our reputation for superior management, reporting and transparency have enabled us to achieve positive results for our clients when other, more adversarial companies, have experienced resistance or refusal from the same lenders, loan servicers and special servicers.
Extensive experience giving you the best results
CRA is extremely experienced and knowledgeable regarding the complex operating and management documents that govern TIC / DST ownership groups, as well as the commercial and multifamily loan documents, covenants, agreements and guarantees of the loans and mortgages encumbering the properties themselves. Our years of experience in working with these documents governing the contractual relationships between each of the various parties to the transaction can be of great benefit to the Ownership group as they seek to navigate through the complexity of relationships and restrictions relating to their property and its group ownership structure.
Typical agreements in a TIC / DST ownership structure include:
Tenants in Common Agreements
- Subscription Agreement
- Purchase Agreement
- Tenants in Common Agreement
- Call Agreement
- Master Lease (when applicable)
- Promissory Note
- Loan Agreement
- Deed of Trust and Security Agreement (Mortgage)
- Cash Management Agreement
- Lock Box Agreement
- Escrow and Servicing Agreement
- Clearing Account Agreement
- Guaranty Agreement
- Assignment of Management Agreement and Subordination of Management Fees
- Assignment of Leases and Rents
- Special Warranty Deed
- Environmental Indemnity Agreement
- Asset & Property Management Agreement
- Asset & Property Management Subcontract
- Leasing Services Agreement
- Listing Agreement
Our workout and recapitalization activities are usually provided in conjunction with our capital market activities to both secure a workout plan from the lender and to also provide or arrange the capital necessary to complete the workout and/or recapitalization.
The Workout and Recapitalization Process
Typically, when a workout or recapitalization plan is completed, the property’s ownership will convert to a multi-member LLC on a tax-deferred basis through an Internal Revenue Code (“IRC”) Section 721 exchange with the new capital provider serving as the managing member for the new multi-member LLC. Existing owners can often co-invest their pro-rata share of the new equity on an equal basis with the preferred equity provider if they wish, with their new capital receiving a preferred return before distributions to existing owners who do not co-invest in the new capital. The structure and distributions of the new LLC typically looks like the following:
- New Capital Provider: Managing Member – manages the new LLC
- Co-Investing Existing Owners: Preferred Members of the new LLC
- Non-Co-Investing Existing Owners: Subordinate Members of the new LLC
New Capital Provider+ Co-Investing Owners – Receives the first level of distributable cash flow equal to their preferred return and return of the new capital. They will also typically receive some participation in ongoing cash flow and sales or refinance proceeds;
- Non-Co-Investing Owners – Receives their pro-rata share of remaining cash flow after payments to the new capital/co-investing owners.
- Co-Investing and Non-Co-Investing Owners – Ongoing tax deferral of their investment.