If you’re on this web site, chances are you know what ‘extend and pretend’ means. I’m not sure when the phrase was derived but when I was in REO in the 90s, working for a failing savings and loan, it was a common expression. It’s shorthand for the ‘forgiveness’ a lender provides a borrower when the borrower’s asset (real property), secured by the lender’s loan, has significantly depreciated in value and is at a price point near or below the then current loan balance. This can occur because of changes in the market (escalating vacancies, declining rental rates), borrower mismanagement, poor timing in bringing the asset to market, or a combination of the preceding. Because the lender doesn’t want to foreclose, adding yet another non-performing asset to the already strained balance sheet, the lender and the borrower reach an agreement where the term of the loan is extended (extend) and the parties subsequently agree that with the extension the borrower will cure the problems with the property, bring value back to the asset, pay off the loan and everyone will go home happy (pretend). The ‘extend’ is happening far more often of late in today’s cycle. The ‘pretend’ almost never comes to fruition but time will tell in today’s cycle. Pretend and extend will become more commonplace if rates don’t abate leaving the challenged properties, many with a need to be refinanced in today’s higher interest rate market, in deeper trouble. Properties are beginning to go back to lenders. This will continue. At this juncture, the extent of which is yet to be seen. Watch this space.

 

 

Svikhart & Associates, a Salt Lake City-based real estate services company, focuses on asset management, brokerage listings and sales, and all aspects of a multifamily investment. Specific diligence regards property operations and strategies to maximize asset performance and value. Additionally, the firm assists owners regarding economic, financial and market factors that impact returns on investment. The firm targets ‘Mid-Tier’ assets which it defines generally as 10-to-60-unit properties.

 

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