As part of the process when we assist lenders, attorneys and bankruptcy courts on assessing properties in default and about to be taken back – and whether we should attempt to restructure the debt, we need to take a more detailed look at the asset.
In many cases the origination underwriting and due diligence needs to be reviewed and revised considerably. We are no longer contemplating making a new loan (where the basic assumption is that we get paid back and never touch the asset) – we are contemplating directly owning the asset.
It shouldn’t just be the potential upside (“Sponsor isn’t performing, we can do better”), it should be (“What are the potential pitfalls of direct ownership and what are we about to be on the hook for that we didn’t realize?”)
I can detail many instances where the lender had to write off their entire outstanding investment simply by foreclosing and taking direct responsibility for the liability they inherited.
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