Debt Buyers' Dilemma: Determining the Best Bid

Let’s assume you are in the market to acquire some distressed real estate debt at what you hope will be a favorable price, and you think you have examined all the angles. You ran the numbers, studied the underlying property, reviewed financials on the borrower and guarantors, analyzed the debt service coverage and loan to value for the asset and had your counsel carefully review the mortgage loan documents. You also received advice from your attorney about the time frame and costs for the enforcement of remedies, should that become necessary.

In determining your bid on the debt, you learned the loan has been kept current throughout its term, matures in six months and is troubled-but not in default. It is unlikely the borrower will be able to refinance the debt, given the dearth of credit in the market, and in such an event, it typically takes four months to foreclose on the collateral in the jurisdiction the asset is located.