While the residential
foreclosure crisis has filled up Florida’s court system beyond capacity, more
commercial property disputes are being negotiated outside the court system.
Jordi Guso, a shareholder at Berger Singerman, is one of Florida’s top
bankruptcy attorneys, and has seen the commercial real estate market’s problems
up close representing debtors, official committees and secured creditors in
bankruptcy, insolvency and relations between debtors and creditors. Guso has
been named one of the Best Lawyers in America since 2006, and a Florida Super
Lawyer from 2006-2008. Guso told The Real Deal about the growing trend of out-of-court resolutions, and why a
commercial foreclosure crisis may not be in the cards.
What kind of trends
have you seen in the commercial market lately?
What we’re seeing is negotiations and attempts at
modifications to existing lending arrangements to avoid defaults or to modify
waivers of existing defaults. I think where things will get interesting is in
the next year to 18 months, when we have a very high number of CMBS debt coming
up for maturity, and a lot of that debt, or the overall majority of that debt,
is not going to be refinanced, or if it is going to be refinanced, it isn’t
going to be refinanced at par, because values have generally gone down and not
What kinds of
problems having been popping up in the litigation that’s been happening?
In Florida, our economy is driven principally by two
components: real estate and hospitality. Notwithstanding that our real estate
market has been battered, if you trace or follow the bankruptcy filings, there
haven’t been a whole lot of real estate-based filings in our market. And I
think that confirms that most of these issues are tending to be worked out
outside of court, although admittedly, in some circumstances you are seeing an
increase in foreclosures. But even those are often negotiated either by a
consensual sale, or a giveback of the collateral with a waiver of guarantee
rights, or a get-back of collateral and a negotiation of the release of the
Some have said there
could be a commercial foreclosure crisis. Does this increase in out-of-court resolutions
mean a smaller chance of that happening?
I’ll give you an example. If you have a proven, credible,
trustworthy operator, of a commercial shopping center, that is simply not
performing in accordance with the covenants because rental rates have gone
down, or the center lost a big box tenant, whether it’s a Circuit City or a
Linens ‘N Things, or one of the other large retailers who is no longer in the
landscape, what incremental value does the lender get by foreclosing and taking
the property back? I would suggest to you that the answer is none. And in fact
if there is a credible, trustworthy manager of the asset, in whom the bank can
repose trust and confidence, in my experience anyway, I think banks are
inclined to work through those issues, recognizing that there are no easy
answers to these kinds of issues. What
the solution going to be is to wait for the market to come back, or
alternatively try and sell the asset in this depressed environment, and risk
loss of principal.
Have any particular
sectors been more problematic?
I think commercial centers in particular are going through a
tough time, because of the tough road that retail has had to go through in
recent history. I think we may see that seep into commercial office space, as
more and more inventory comes on line, and leases come up for renewal, and
tenants are going to be negotiating hard for concessions, tenant improvements,
decreased rent occupancy rates, and the like. And so that I think will put more
pressure on the commercial sector, and lastly, possibly more hospitality-based
troubled real estate. Hotels and resorts are going through a tough time, not
only Vegas, but here in Florida as well.
To what extent has
your practice been changing in the last couple of years?
I think as with most of us within our space, more out-of-court
work, less in-court restructurings, more sale-based cases, where there’s
consensus to put the asset in the hands of another buyer who may be perceived
as better capitalized, and in support of those arrangements here are generally
negotiated resolutions of guarantees where the debt is guaranteed, or releases
of the guarantee where the guarantor can demonstrate that he doesn’t have the
financial capacity to pay.