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It's All About the Guaranty
Insolvency professionals, both lawyers and financial advisers, are often facing an all-too-common issue when advising on real-estate-related situations in today's market. The issue they face is that the property has more debt than it can support and/or more than it is worth and the entity they represent, the debtor, may be only one of the guarantors in the failed real estate venture. Every legal and financial adviser dealing with distressed real estate needs to put up a sign reminding themselves (and their clients) that “It's all about the guaranty.” In almost all distressed real estate situations today, the banks are looking to the guaranty as a source of funds for repayment.
Since real estate asset values can be established, this means the guaranty is the main factor that will impact the ultimate economic resolution and therefore the one the banks will focus on the most. This situation often creates numerous issues for the legal and financial advisers ' first and foremost that “the client,” the debtor is often only one of the decision makers in resolving the issues. In fact, the other guarantors may have different guaranty obligations than the debtor and therefore have retained their own legal advisers to protect their interests. Depending on the relative strength of the guarantors, the debtor you represent may or may not be the “real power.” This entire situation (very commonly) is further complicated when the debtor, often a LLC or other single purpose entity, has both corporate and personal guaranties ' often with many of the same key principals with a financial interest in both.
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