Publications

Equity Participations in Property Loan Workouts

March 2010
Distressed Assets Investor

Lenders are faced with an ever-increasing number of defaulted commercial real estate mortgages, forcing them to either modify the loan or foreclose on the collateral. Workouts remain attractive for lenders with loans in which the value of the property is insufficient to repay the outstanding balance. This active workout market has caused lenders to employ various non-traditional means to make themselves whole. One such method is the use of an equity kicker, equity participation, shared appreciation or contingent interest loan, in which the lender receives, in addition to traditional interest payments, the right to a percentage of the income or profits from the property. With the promise of future income, a lender may be more willing to negotiate terms with the defaulting borrower.