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Unprecedented Challenges in Commercial Real Estate Restructuring

By Paul Melville and Melissa Dimitri
October 26, 2010

It is not often that restructuring professionals agree on anything, but if you ask which sector of the economy is providing them with the most opportunities, they will pretty much agree on the answer as commercial real estate (“CRE”). Many scholarly articles point to frightening statistics such as the $1.4 trillion in CRE loans that are scheduled to come due in the next three years. Or perhaps they mention the fact that office-sector vacancy rates were forecast to rise from 16.3% in the fourth quarter of 2009 to nearly 18% in 2010, only to remain high in 2011. Then, of course, there's the well-publicized liquidity crisis.

The unprecedented challenges currently facing the CRE industry make many of the traditional restructuring strategies, including cash preservation, traditional debt restructuring and delevering, and divestitures, too generic to be actionable, or, simply impractical.

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