Why Banks Would Rather Sell Your Debt Than Cut You a Deal

0:04We've seen a lot of transactions where, so there's a trillion, maybe it's two to three trillion over the next couple of years that's coming due. And all these banks have kind of kicked the can down the road. We've had maturity defaults, and they're doing that. And I'm seeing a lot of companies now losing their projects. And there's people going in and buying the debt out of a discount and then obviously being in a foreclosure auction and being in a much better position to buy that asset. And what I found curious is that a lot of these banks, they're more likely to deal with another operator coming in to buy these projects, obviously on the cheap, taking them out.

0:51And I've seen projects where there's a really, really good operator in there that's operated it for a long time, but now the numbers just don't work with the current interest rates and all that. And I just find it curious that these operators can't go to another institution based on the current appraisal and the numbers and go to the bank and say, look, I know you're owed, just pick a number, you're owed$100 million, whatever the number is. And we've penciled this out. This is the highest appraisal we have. We've been a great operator for 10, 15, 20 years. And I can't take you out at$100 million.

1:32The highest I can get is$85 million. Take$85 million in cash and write the rest of this off. and the banks won't do that, but they'll go sell it to another operator who's going to give them the same, you know,$75 million and completely take that operator out. And I just, I can't get my arms around that. They're like, you'll do like almost a short sale, but you won't take the short pay. I mean, any thoughts on that? That's a good question. Yeah, I mean, it's, again, a loaded question, right? First of all, I'll tell you what we're seeing in the market and what's keeping us ridiculously busy. We're putting hundreds of millions of dollars out on exactly what you said, but with a little twist.

2:13I think the real opportunity is we're seeing individuals or sponsors and institutions purchase debt at a discount from a bank, but then they're cutting deals with the borrower. That's what we're seeing. Those are the only deals we will get involved in. We'll lend the money on reposition the loan, rebalance the loan, recapitalize the loan. as long as there's a new sponsor coming in. But there has to be some sort of like hand over the keys, cash for keys, but some sort of arrangement. We're not going through the foreclosure system, especially if it's in a judicial jurisdiction. So there's already that deal set up.

2:50But a lot of times, think about what you're saying for a moment. Like why would a bank, like lenders come to me all the time. They're like, hey, your asset, if I did a$50 million deal, your asset's only worth$40 million now. I could only pay you$40. All right, pay me 40, but I'm not reducing my loan because who knows what that's worth five years from now. So why would I ever just take$10 million off of a loan? It makes zero sense. You could reposition the note rate, reposition the interest payments, reduce them, do some sort of back-end interest. As far as getting new people to come in, it actually makes a lot of sense for the sponsor because if a bank has, like you said, a$100 million loan and they're now going to take 80, that sponsor has$20 million in forgiveness of debt.

3:32And I don't know about everyone in this room, but I'd rather have a bank chase me than the IRS. So there's a lot of reasons. What I think you're saying is that they'll go to you and sell it to you, but they won't renegotiate with the operator. We've had some really good operators that have been great operators. They won't deal with that operator. They want to see the new kid on the block come in. They'll still take that haircut. And we had a really good operator for some malls. Obviously, that's not a dirty word right now. but they were a good operator and exactly what you said was that forgiveness of debt came up and all of that but they just couldn't get them to say hey look take 80 but i'll take 65 from that yeah but can't you make the argument if they're a good operator why do they over leverage the the asset in the first place that's exactly what i was going to ask you john is that is that because of the confidence thing it's like look you you put this thing in this situation why am i going to bet on you again.

4:27You think that's sort of what that is? Yeah, absolutely. It's a failed deal. I mean, no matter how you look at it, it's a failed deal. The sponsored it and performed. Well, something like office and all that, you know, they've run it forever and all of a sudden the vacancy rates are, you know, are so high. I, you know, I didn't plan on that. Okay. I had good financing in place. You know, things have now changed. We had COVID. Let's look at the office market. It just, it doesn't pencil out to that value anymore. The fundamentals worked for a long time. I can't necessarily say that's the operator's fault that now he's got these huge vacancies.

5:03I think sometimes they say like, you know, if you look around the table in a deal and there's no one else that looks like the big money, you are the big money. Sometimes the banks just want big money to come in. Something goes wrong, they're going to self-fix it. They're going to be able to raise the capital from the street or just self-band-aid it and get through so they don't have another headache on their hand 18 months from now after letting you get back into the asset. Oh, something else went wrong. And now they're back at the distress table with them. I think that's part of it maybe. And they got to report to somebody too.

5:28So guys, thank you so much. We got some great people up here. Please take your time, talk to them, wealth of knowledge. And thanks guys. Hi, I'm Richard C. Wilson. Our community has closed over$1 billion of transactions. We have over 16 million registered members across 100 plus LinkedIn groups. And I own billionaires.com and run Family Office Club. Over 19 years, we've hosted 300 live events. I've built 50 of our own AI tools. And between the billionaires I've interviewed, the centimillionaires who have spoken on stage and over a thousand decamillionaires who have presented, we've found there's three things that really can build your wealth.

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