Vetting the Lender

While many lenders are looking for any hint of poor financial health among borrowers, those looking for funds might also look under their lender’s hoods. Or so office owner and developer Thomas Properties Group discovered during a recent complex transaction. Thomas Properties and some partners completed a debt restructuring for a portfolio of office buildings in Austin, replacing a $100 million unfunded commitment from Lehman Brothers Inc. with a $60 million priority credit facility that the ownership group will use for lease-up costs and property improvements.Lehman Brothers, whose bankruptcy last September shook the financial world to its core, owned half of the 10-building portfolio and provided debt financing to the other partners, in addition to its $100 million commitment. And $80 million in existing debt that the group secured was retired to reduce overall leverage on the portfolio.The transaction may be a harbinger of things to come, as the balance sheets of many large lenders may be of questionable durability. “This is new, in my experience: a case where a commercial property lender failed to meet its funding obligations,” said Cox Castle Nicholson L.L.P. partner Douglas Snyder, who worked on the transaction. “This is a role reversal, as the lender is the party in default.”This kind of transaction raises such questions as whether the borrower is still required to pay interest if a lender ceases to provide financing. Ultimate resolution of these issues will likely prove time consuming, as communication between lender and borrower has become tougher now that so many recent-vintage loans have been securitized, Snyder said. “These days, loans are chopped up and sold off in pieces,” he observed. “Many borrowers and lenders have no relationship.”For more on hard-to-finance deals, visit and enter “Historic Solution” and “Condo Bet” in quotation marks.