Shlomo Chopp on POWERS: How to Work Out Distressed Real Estate Debt
CASE founder Shlomo Chopp joined the POWERS podcast to discuss how borrowers can understand loan documents, protect leverage, and prepare for a real estate loan workout before a default.
Shlomo Chopp, Managing Partner of CASE, joined Chris Powers on the POWERS Podcast for a conversation about the mechanics of distressed commercial real estate debt: what changes when a loan goes bad, why the old fire-sale playbook does not fit modern workouts, and where a borrower’s actual leverage begins.
The workout starts in the loan documents. A borrower may think of a mortgage as a note secured by a property. Modern commercial real estate financing is a far more elaborate operating system, with cash-management provisions, reporting requirements, guarantees, assignments, reserves, and non-recourse carveouts that can change the borrower’s position long before a lender declares a default.
Why the Old Workout Playbook Fails
The common assumption from the savings and loan era was that a lender would rather accept a discounted payoff than take back a troubled property. That logic does not translate cleanly into the current market.
Securitization changed who sits across the table from a borrower. Many commercial loans are held in structures managed around expected cash flows rather than by a local bank simply trying to clear a bad asset from its balance sheet. The lender or servicer may have more time, more control, and less reason to accept a quick resolution simply because the borrower has offered one.
That does not mean a workout is impossible. It means the borrower needs to understand the lender’s decision-making structure, the alternatives available to the lender, and the property-level facts that support a better resolution.
Loan Documents Control the Property
The most important work often happens before a loan becomes distressed. Borrowers need to understand how the documents affect operations in practice—not just whether the documents appear reasonable during closing.
A payment date that moves because of a holiday can affect when rent is available. A cash trap can capture funds the borrower expected to use for operations. A reporting failure can lead to fees or default consequences. An insurance-proceeds provision can require money to flow through the lender before it can be used for repairs.
Each provision may look manageable in isolation. Together, they determine whether the borrower has enough liquidity to operate the property through a difficult period.
Non-Recourse Is Not Always Non-Recourse
A non-recourse loan can become recourse through specific borrower actions and failures to comply with the loan documents. The relevant triggers are often not dramatic misconduct; they may arise from ordinary accounting, reporting, cash-management, or property-management practices.
That is why a legal review is not enough on its own. The people operating the asset need a practical compliance map: what must be delivered, when it must be delivered, how funds must move, and which actions can create personal exposure.
The borrower who discovers these issues after distress begins is already negotiating from a weaker position. The borrower who understands them in advance can address the problem, preserve options, and avoid creating leverage for the lender.
Negotiate Before the Documents Are Final
Chopp’s advice for borrowers is to study existing loan documents before the next deal. Understanding the mechanics of a prior loan allows a borrower to identify the provisions that matter most in the next term sheet.
The key areas include cash-management triggers, release conditions, carveouts, reporting obligations, insurance requirements, reserve mechanics, and the circumstances that can create recourse. Those issues should be raised while the borrower is negotiating with the lender’s business team, not only after documents have been handed to counsel.
The goal is not to over-lawyer a transaction. It is to understand the economic consequence of the language before accepting it.
What Borrowers Should Do Now
A borrower facing a maturing loan, declining debt-service coverage, a cash-management trigger, lease rollover, or reduced liquidity should begin with a full diagnostic. Review the loan documents, re-underwrite the property, identify operational constraints, and determine what capital or changes are required to stabilize the asset.
Then build the negotiation around evidence. A lender does not need a borrower to insist that a property will recover. It needs to understand the facts, the feasible alternatives, the borrower’s plan, and why that plan produces a better outcome than enforcement or a forced sale.
Facing a maturing or distressed commercial real estate loan? Get in touch with us to explore your options.
Frequently Asked Questions
Why should a borrower review loan documents before a default?
The documents can create cash-flow restrictions, reporting obligations, fees, and recourse exposure that affect a borrower’s negotiating position. Reviewing them early gives the borrower time to correct problems and plan around potential triggers.
What is a cash trap in a commercial real estate loan?
A cash trap, or cash-management mechanism, allows a lender to control or retain property cash flow after specified triggers occur. The money may remain restricted until the loan meets the conditions for release.
Can a non-recourse real estate loan become recourse?
Yes. Non-recourse carveouts can create recourse if specified conditions or borrower actions occur. The applicable triggers depend on the loan documents and may include operational or compliance failures.
When should a borrower start preparing for a loan workout?
Preparation should begin before a maturity default or payment default. Early review of the documents, property economics, and lender structure gives the borrower more options and a stronger basis for negotiation.
Listen to the Episode
How To Workout Distressed Real Estate Debt with Shlomo Chopp is an episode of the POWERS Podcast hosted by Chris Powers, published September 30, 2026. The episode runs 1 hour and 8 minutes. Full credit to Chris Powers and the POWERS team for the conversation.