Real estate debt and COVID-19

Real estate owners with debt should be communicating with their lenders as soon as possible should the COVID-19 lock-down impact tenants' ability to pay rent and an owners' ability to meet debt servicing obligations, or which might otherwise result in a breach of loan terms and conditions. Even if there is no risk it is still valuable to report negative findings. Rest assured all banking credit risk teams currently will be analysing where problems are likely to occur during the COVID-19 crisis and developing action plans in response. So what can you do?

As property owners we are in close communication with our tenants to understand any difficulties they might be experiencing so that we might be able to understand ours. As advisors we are also helping clients do the same as it’s paramount to have this understanding to inform strategy and to provide a framework for any finance restructuring proposals, should the need arise.

Additionally, whilst we expect the New Zealand banks to be receptive to restructuring or payment holidays, as seems to be emerging in Australia, it will be beneficial to fully understand loan facilities and their commercial terms, conditions and covenants to get a broad appreciation of what actions or restructuring possibilities there might be in the event of a deteriorating economic environment.

SOME KEY CONSIDERATIONS

• Undertake a review of loan facility documentation

• Understand the key commercial terms

• Drawing on tenant engagement calculate if or when loan conditions or covenants might be breached.

• Understand what constitutes an event of default; and

• What remedies and timing of remedies are available to both lender and borrower

• Understand cross-guarantee structures and any impact on other areas of business or personal property

• Develop a feasible and realistic plan which addresses risks

• Understand the opportunities for risk pricing and term funding security.

To get through these challenging times, to minimise long term disruption and to be set to get going again we all need to be understanding of pressure points and sympathetic towards business constraints. By doing so and by working together we will come out the other side on a strong footing.

For an informal discussion or to learn more about our specific investment and funding advisory services in New Zealand please contact:

NEW ZEALAND

Toby Scott, Director

Tel: +64 (0) 27 5299 879

Email: toby@tascott.co.nz