TMA NOW - Distressed Real Estate Panel Event

Emily Scaife (ES), Partner at Burges Salmon, introduced Burges Salmon, TMA NOW committee and thanked Nyree for helping to organise the event. ES introduced the panellists:

• Susannah Rose (SR): Head of Workout & Restructuring, Real Estate at OakNorth Bank;
• Natasha Harbinson (NH): Managing Director and licensed insolvency practitioner at Interpath Advisory (previously held restructuring roles at AIB and Santander); and
• Alexandra Ward (AW): Surveyor and Fixed Charge Receiver at Allsop.

The refinancing gap

ES explained what is meant by the refinancing gap and the prevalence of lenders amending and extending facilities over the last few years whilst borrowers try to find refinancing solutions. SR confirmed that, in her view, the refinancing gap is starting to close but there are distinctions between different asset classes and geographical locations. SR provided her top tips for borrowers experiencing the delays of the refinancing gap:

• Communicate with your lender early, preferably 6-12 months prior to any event with a structured plan covering all options; and
• Always be honest and open with your lender to protect the relationship.

NH discussed the additional factors that are contributing to the refinancing gap (in addition to increased pricing and difficulties with valuations) e.g. ESG, Building Safety Act, planning, enhanced KYC requirements

Enforcement considerations

ES and AW discussed the complexities caused when borrowers seek to challenge a lender’s enforcement actions – both at the point of enforcement and on any subsequent sale of the property. AW recommended that lenders should obtain robust legal advice on all aspects of the enforcement process.

ES reminded the audience of the recent Fairmont Property Developers UK Ltd v Venus Bridging Ltd case in which the court reconfirmed the wide discretion given to fixed charge receivers, particularly in cases of negative equity. The judge highlighted that exceptional circumstances must exist before it will order a sale on terms against the wishes of the lender; there must be “some identifiable and more than trivial unfairness to the mortgagor”.

ES reminded the audience that receivers’ powers are limited to those written in the security document and the Law of Property Act 1925. ES asked SR what things she considers when deciding between receivership and administration as enforcement strategies?

SR recommended always starting with the simple question of what is your security and who can you appoint? In terms of options, generally receivership is quicker if there is a clean asset and it provides the lender with more control. In contrast, appointing an administrator will allow trading to continue and provide wider powers for the officeholder, for example, investigatory powers.

ES reminded the audience that debt sales can also be considered as an alternative solution.

ES, NH and SR discussed the additional option of enforcing personal guarantees and when that might be useful as a negotiation tactic.

Diversification of the lending community

ES explained that the lending community has diversified enormously over the last decade and, as a result, we are seeing very different decisions being made due to debt fund structures, lack of real-life restructuring experience etc.

The panel shared their top tips for how to approach a distressed real estate scenario by looking through the lens of borrowers, lenders and new investors.

AW:

• Lender (development) – get every single piece of information and encourage IMS reviews
• Borrower – engage with the relevant officeholders who are appointed as collaboration is more likely to lead to equity value.

NH:

• Lender – plan and gather information even if the borrower has not yet come to you in distress.
• Borrower – engage early and plan exit options.

SR:

• Lender – one size does not fit all, if a borrower is working with you and cooperating don’t rush to enforce.
• Investor – you must be flexible.
• Borrower – be honest, know your lender and act accordingly.