What We Actually Do as Commercial Real Estate Debt Restructuring Experts

by: Shlomo Chopp, Managing Partner

Most borrowers meet us when things are already sliding. Their loan is overlevered and the default clock is either ticking or about to start. The Lender has leverage, remedies, and the ability to enforce and move on.

On our side, there's a finite amount of time before someone else makes the decisions for everyone. Our job is simple to describe and hard to do. We try to make “just enforce” the wrong answer for the lender.

Made‑Up Good News Doesn't Help the Deal. It Kills Your Credibility.

Many borrowers first try positivity. If only they had a bit more time they can deliver a solution. Well, I guess that’s only if they are not already at wits end, in which case they try the good ‘ol “you don’t want the asset, I’ll give you pennies on the dollar.” Neither works.

They promise capital they can’t raise. They talk about a market recovery. The lender hears the gap between the story and the facts and mentally checks out.

We start from the opposite place. We assume we don’t have leverage. Then we go build some. Not fake leverage. No empty threats. The work is to lay out a path where the lender looks at their choices and decides, using their own math, that our plan is the least bad option.

We’re not telling them they can’t enforce. We’re showing them what enforcing actually looks like in dollars, time, and headache. Including post-foreclosure. I am showing them what they’re buying with all their leverage, and arguing for a better solution – our proposal. 

The Litigation Reflex

A pattern I see a lot is that by the time a borrower calls us, someone has already floated litigation. Sometimes it’s their litigator. Sometimes it’s a friend. Sometimes it’s just the only “idea” anyone has left.

The problem is basic. Litigation happens in court. Courts enforce rules, and with debt, the rule is simple. You signed a note, you have to pay it back. Walking into court as a defaulted borrower with no serious legal defense, is a waste of time and money.

Litigators argue motions and fight over process. They press technical advantages. But in a single-asset, senior-loan situation with no built‑in legal leverage, winning a motion isn’t a viable workout. You can spend millions “fighting” but the loan remains unpaid.

In a real workout, counsel is still central. We want sharp lawyers on our side of the table, but they’re not a substitute for a coordinated strategy.

Read the People and Property Before the Paper

On paper, a loan facility looks clean. Note, mortgage, assignments, carveouts, cash management, reserves, financials, DSCR tests. All of it matters and we’ve built our practice reading that stuff in detail.

But the real game sits one level down. Who’s managing the file? Is it a special servicer, a bank manager, a direct lender? Is the asset manager buried under 70 other problems? Does the credit committee hate write‑downs or just hate surprises? Is this a $50–200M deal that matters inside their book, or a rounding error they’d like to clear?

Before we start drafting a proposal, amongst other things, we want a working theory of the person on the other end of the phone. How they get paid. What they’re scared of. What gets them yelled at. The same loan, in the hands of two different asset managers, is two different games. 

The documents tell you what they can do but their incentives tell you what they will do. 

The property gets the same treatment. Before forming an opinion on the loan, we need an opinion on the asset. We walk it when we can. We pull the rent roll apart and pressure test what the property actually does, not what some appraisal will say. Which tenants are real, which are hanging on, where the deferred maintenance is hiding, what the submarket is actually doing on rents and concessions, and what a stabilized number looks like through a buyer's eyes instead of a bought-and-paid-for appraiser. Oh, and lender asset managers typically overweigh the borrower as the problem. Cognitive dissonance crosses the lines.

Preparation Is the Work

This part is not glamorous. It’s our team reading through mind numbing documents, reviewing every carveout, tracing every covenant. Rebuilding the cash flows from scratch and hitting them with ugly, realistic assumptions, and assumptions you can prove out and convince your counterparty are correct. It’s figuring out not just that the DSCR is 0.85x, but why, and how it trends if you change rates, taxes, capex, and rents.

All of that has a single purpose, to decide how we’re going to present the facts.

When we go back to a lender, we don’t want a story, we want backup. We don’t want to argue, we want to convince. Something that shows, line by line, what enforcing looks like for them. We want them to understand their costs, timing and what our proposal looks like next to it.

When they realize we’ve done that level of work, the tone of the conversation changes. Bluffing gets harder and the conversation is based on the underlying numbers. That’s the edge, not slogans, not golf outings, not connections, not aggression. Just being more prepared than the other side expects.

The Second Negotiation: The Client

There’s always another negotiation happening in the background. It’s with the borrower. Clients show up scared, angry, or both. They’ve put real money into the deal. They’re staring at a battle they don’t think they can win. They’ve been told a myriad of stories often by people who’ve never been through a real workout, about what happens next.

We spend a lot of time resetting expectations. We talk about what a realistic landing actually looks like. We talk about the need to let the process come to them. We talk about the difference between protecting equity and chasing pride.

We talk about the fact that there are dozens of ways to get to “2.” 1+1, 3‑1, 100‑98 all end up at the same place and that the path we end up taking depends on how the lender actually behaves, not how we want them to behave. Being prepared means being nimble.

If we can’t get the client aligned on a rational end state, no amount of strategy with the lender will matter. They’ll blow up the deal because it doesn’t match the story in their head. This is why we turn away so much business.

Bankruptcy as a Tool, Not a Threat

Chapter 11 shows up in our world, but not as often as people think, and when it comes to non-recourse loans, we steer clear of it like the plague. There are certainly “bankruptcy jockeys” trying to manipulate borrowers to their own ends and they lend a black eye to the industry.

Used appropriately, however, it’s a way to slow things down just long enough to force a real conversation. We advocate filing only under a limited set of circumstances, often including when you have equity to protect, a workable plan, money to keep payments current, and a lender representative who’s just going through the motions instead of actually maximizing recovery.

We show the court and the lender that your plan gives them more than a fast foreclosure, and we move in and out as quickly as we can.

Used poorly, it’s a very public, very expensive way to confirm that the lender was right all along. We never lead with it and almost never utilize it. If it’s on the table, it’s because the facts and the economics justify it, not because we ran out of other ideas.

The Wrong People for This Work

The most frustrating thing is that every cycle, a familiar cast of characters wanders into distressed debt. Perhaps I should be more understanding as I got my start from nothing in 2010. In fairness however, this was work I was naturally inclined to succeed at, and time proved that out.

You see corporate restructuring professionals who are brilliant in complicated capital stacks, but lost in a single‑asset, single‑loan fight with no inherent legal leverage. They’re used to playing with fulcrum securities and plan classes, not with one mortgage and a clear case. Against them. 

You see litigators who think the best way to negotiate is through a game of telephone with Lenders counsel, and that if they can just beat the lender up in court, the economics will somehow work themselves out. They win a motion, everyone feels good for a month, and the building is still overlevered and loan unpaid at the end.

You see real estate generalists who decided “workouts” sounded interesting this year and are essentially testing on live humans, often in a market they barely understand.

None of these people are bad at what they're actually good at. It's just not loan workouts. They’re playing the wrong game. Distressed debt workouts, especially in CMBS and structured products, are their own discipline. If you don’t live in that world, understanding servicing standards, watching how special servicers actually behave, seeing what happens across dozens of files, you miss the small decisions that move the needle and make mistakes that have great implications. 

The negative kind.