With the imminent change of government and the expiration of certain relief packages, we’re talking to senior bank offices and REO asset managers, and banks on the West Coast about issues in the real estate market.
In this conversation, we talk to Craig Russillo, an attorney at Schwabe Williamson & Wyatt in Portland, OR. We got his insight on what will happen in real estate in the New Year.
Since 1997, Craig Russillo has been helping clients resolve complex commercial disputes, particularly with respect to borrowing, lending, and real estate. Craig works extensively with lenders and creditors in judicial and non-judicial foreclosures, representing their interests in state, federal, and bankruptcy courts. Craig specializes in troubled asset transactions.
JUST IN BROAD TERMS, WHAT DO YOU SEE COMING AS WE MOVE INTO 2021 AND ALSO WHAT DO YOU SEE IN FORBEARANCE CHANGES?
In landlord-tenant, I do not think for a minute that we’ve seen all the regulation that we’re going to see, or the moratoriums. Most of the moratoriums are expiring at the end of this year, but considering where we are with the virus, that things just seem to be heading the opposite way, even though we are now rolling out the vaccine or vaccines, I do not think that we’ve seen the end of state, local municipality efforts to either stop foreclosures or to hamper them, slow them down and give tenants more ability to stay. I also think though that in 2021, we’re going to see state, local municipalities provide some funds or some concessions to landlords because landlords have been carrying this pretty much since April. And so I think if we’re going to see an extension of that into mid 2021, I do think that there will be some effort made to provide the lenders with some access to funds to soften the blow.
ARE YOU STARTING TO SEE LANDLORDS STEPPING AWAY FROM PROPERTIES OR ARE THEY STILL ABLE TO WORK THROUGH AND SELF-FUND?
No, I haven’t. The bankruptcies have not increased from my point of view. I haven’t seen an increase. I don’t think it’s increased the amount that everyone thought. A lot of the PPP money is running out and a lot of tenants didn’t have to pay rent. They don’t have to pay rent right now. So, I suspect that in 2021 as soon as that rent relief expires or is limited I think certain sectors are going to have some real troubles. Landlords, typically, unless they’re highly leveraged, probably can weather the storm. The tenants are obviously the ones that are going to be different. Large landowners, like malls I mean, they’ve been filing bankruptcy for the last few years and I don’t see that changing, especially when you have indoor space. They’ll be especially hit hard. But the tsunami of bankruptcy that everyone expected to happen in this fall hasn’t materialized.
ARE YOU SEEING ANY BANKRUPTCIES OR MOVEMENT IN THE HOSPITALITY MARKET SPACE, URBAN MARKET, HOTEL TYPE PROPERTY OWNERS?
Not that I’m aware of. Any large hotel chain, a lot of these are franchise owned so not a lot. We are seeing some of the franchise owners give up the ghost and just say, “I’m done”. We had one in Alaska where we went in and the lender took it back. A lot of that debt was in what are called commercial mortgage backed securities. So that loan was partly bonds and they don’t have personal guarantees attached to them so it’s very easy for the borrower to walk away from that.
AS A COMPANY, DO YOU HAVE BANKING CLIENTS ON RETAINER? IS THAT NORMAL PRACTICE FOR YOUR FIRM?
Banks don’t typically hire lawyers on the front end, unless the deal is very big. But a lot of banks figured out how to do loans on the front end. It’s on the back end when things go bad, I represent lenders there. And so I’m talking to people who have a portfolio of assets that are troubled.
IF YOU WERE TALKING TO A BANKER AND HELPING THEM PREPARE FOR WHAT MIGHT COME IN 2021, WHAT WOULD YOU ADVISE THEM TO DO?
Well, the advice for any lender is make sure your loan documents are in good shape. A lot of times we get into situations where the lenders will give what’s called a forbearance. They’ll withhold or forbear from exercising their rights under the loan in exchange for something. So that’s obviously still very much in play and if you have any issues with your loan documents or your borrower, that’s the time to cure them.
You also need to really be up to speed on the changing landscape of the state, the laws of the state, and also the… what we’re seeing now, which we haven’t seen before are proclamations that the governors are making, which, one could argue may not be constitutional.
A lot of this is advice that you would give any lender before exercising on an obligation. The difference now is that you have legislation at all various levels or proclamations coming out that you need to be aware of. And so that needs to be factored in, which is something that you didn’t typically have to do before this. In the past, you had to be up to speed on updates to the law but nothing like what we’re seeing these days.