The FORT Podcast: Real Estate Real Talk – Personal Guarantees, Foreclosures, Bankruptcy, and Bouncing Back with Andrew Kirsh and Zack Streit
On this episode, Chris is joined by Andrew Kirsh and Zack Streit. Andrew is an experienced commercial real estate transactional attorney, whose clientele includes a broad spectrum of national, regional, and local investors, funds, developers, operators, syndicators, private equity providers, and lenders. Andrew’s practice involves all aspects of the real estate industry, including acquisitions, dispositions, equity investments, syndications, fund formation, development, leasing, financing, note purchases, and foreclosures.
Zack has 15 years of multifaceted commercial real estate investment and advisory experience, including as an equity capital provider, a debt capital provider, and a capital advisor. His 8 years of institutional principal investment experience laid the foundation for a career as a capital advisor, where he has co-founded a capital advisory platform and closed billions of dollars in commercial real estate ventures.
On this episode, Chris, Andrew, and Zach discuss:
- Personal Guarantees
- Personal vs. Non-recourse loans
- What to do when a deal and loan goes bad
- Foreclosing on a personal guarantee
- Filing for bankruptcy
(00:01:42) Personal Guarantees
(00:10:57) Personal vs. non-recourse loans
(00:20:14) How lenders are treating covenants in today’s environment
(00:25:03) Lookback periods
(00:31:18) Capex Busts
(00:33:41) Is the banker really my friend?
(00:37:28) What to do when a loan goes bad
(00:57:54) Deciding to foreclose when you have a personal guarantee
(01:00:36) Filing for bankruptcy
(01:09:46) Final Thoughts
Andrew Kirsh, based out of Los Angeles, brings a wealth of legal expertise to the table, while Zach Streit complements the discussion with a robust understanding of the debt and equity markets. The duo’s combined experience provides listeners with an invaluable perspective on contemporary real estate dynamics, extending advice to peers on maneuvering through and capitalizing on the current market flux.
The podcast begins with a sobering acknowledgment of the industry’s bullish run’s end, paving the way for a discussion on the realities facing today’s real estate professionals. Kirsh underscores the importance of understanding loan documentation, articulating the potential for borrowers to negotiate terms, especially with debt funds and private lenders for substantial loan amounts. He emphasizes the inherently lender-friendly nature of loan agreements but points out the possibility of negotiating nuances that can offer borrowers protection and leverage.
Turning to real estate development, Streit and Kirsh address the prevalence of cost overruns in large construction projects, attributed to inflation and rising costs for materials and labor. They discuss the practical implications for developers, noting that repositioning efforts in multi-family and industrial real estate often lead to capital expenditure (CapEx) challenges. The necessity for developers to communicate effectively with lenders and strategically manage project finances in light of these cost pressures is a recurring theme.
As the discussion progresses, the focus shifts to the ethos of conducting business within the real estate realm. Powers emphasizes the significance of acting in good faith—not only as a financial obligation but as a cornerstone of preserving one’s reputation within the industry. Streit reinforces this sentiment, stressing the importance of transparency in lender relations and the proactive management of expectations and project challenges.
A critical aspect of the podcast is the candid exploration of financial distress situations, where Powers probes into the nuances of handling projects that are financially underwater. The speakers deliberate over the sensitive decisions surrounding the injection of personal capital into failing projects, considering the potential for loss and the strategic considerations impacting such decisions.
In the latter part of the episode, the discussion transitions to the topic of bankruptcy, regarded not as an industry taboo but as a potential strategic maneuver within a real estate professional’s arsenal. Kirsh and Streit explore the conditions under which bankruptcy might be the most prudent course of action, the impact of timing on the bankruptcy decision, and the aftermath of such decisions. They touch upon the resilience of industry professionals who have emerged from bankruptcy with their reputations intact and their businesses revitalized.
Throughout the episode, the trio keeps returning to the central premise that character and integrity play pivotal roles in real estate dealings. Whether it’s in negotiating with lenders, managing cost overruns, or facing bankruptcy, the manner in which one conducts themselves is portrayed as equally critical to the outcome as the financial figures on the table.
The podcast does not shy away from the stark realities of real estate economics. Instead, it offers an unvarnished look at the complex decisions that professionals must make when faced with adversity. By foregrounding the importance of communication, negotiation skills, and ethical conduct, Powers, Kirsh, and Streit provide a roadmap for real estate professionals to navigate uncertain times.
The episode concludes on an empowering note, with the guests illustrating that adversity in real estate is not only a test of financial acumen but also of personal resilience and the strength of one’s professional relationships.
The FORT is produced by Johnny Podcasts