Commercial Real Estate Deals and Problem-Solving
Several years ago, as Senior Credit Officer, it was my responsibility to see each project, meet each borrower and structure each deal considered by the real estate division before it went to the executive loan committee. I was also a member of the Executive Loan Committee. We met twice a week and approved every loan that exceeded $2 million. This was virtually every loan we made. It included not just real estate loans but all types of commercial loans as well (secured and unsecured term loans, lines of credit, letters of credit, entertainment loans, and inventory financing). I also had the personal responsibility of handling any real estate secured loan that was not performing as agreed. So, some of these stories are about putting deals together, and others about dealing with problems. As you can imagine, the stories about problems are the most interesting.
Rock Pile: I went to San Diego with the head of our cost estimating and disbursement control department to see a proposed multiphase single-family tract development. The first phase was land development to put in the backbone followed by several phases of development for the homes. I brought my associate along because I was concerned about the site which was in a hillside area which can be a little dicey. We get to the site and met the borrower. Staring us in the face were huge rock outcroppings of granite. I took a deep breath and asked the borrower how he was going to be able to grade the site. He said “not to worry, it is only on the surface, my grader assures me it can be ripped, no blasting required. He is so confident that he will sign a guaranteed maximum or fixed-price contract to complete the grading within the budget that I have included in my loan budget” We completed our meeting and my associate assured me that he would require a guaranteed maximum contract. I made that a condition of approval and we moved forward. About six months later, after we closed the loan, my associate came to me and said “We have a problem.” “What problem?” I asked. He said that we were encountering significant cost overruns. Related to what I asked. He said Grading. How can that be our problem we have a fixed price contract. His reply was “not exactly”. What does that mean, I asked? He replied that the fixed price contract was double our budget so he waived the requirement. We were able to work it out after a lot of blasting and an additional advance by the bank. However, a new policy went into effect to prevent waivers of approval conditions in order to prevent a recurrence.
Bully: We had a long relationship with an apartment developer of large 250+ unit projects. He ran a tight ship on his projects and his Sub’s snapped to attention when he went on the project sight. I think the fact that he was 6’5”, 300 pounds, cussed like a sailor and had a short fuse may have helped. He built a great product. We just had one small issue with him. His construction budgets were always short. That is because, if he showed the real cost, he would have had to invest more equity up front. I was really getting tired of having budget problems on his deals. I had a long conversation with Senior Management and told them that I would not do another deal on a short budget. They agreed and suggested I have a face to face with the borrower. I set up the meeting and the only conference room available was on the Executive Floor. When I explained that future deals would be done only with an adequate budget, the borrower flew into a tirade. He stood up and began pounding on the conference table with all his might and used every cuss word known to man. I just sat there and listened without saying a word or changing my expression. He continued for about 30 minutes until he was exhausted. When he was done, he asked, “so what are you going to do”. My answer was to get an adequate budget or pass on the deal. He said OK and the meeting ended. When I walked out of the conference room the entire floor had vacated. I asked them later why they did not send help for me and they said: “oh we knew you could handle it”. They really had my back.
The Hole Truth: We had a policy that we did not lend on unentitled land. This was because of the inherent risk associated with project approvals. One day my boss came into my office all excited. He had just met with two well-known developers in Los Angeles and agreed to provide a land loan on a highly visible site on Ventura Blvd. that would be followed shortly by a construction loan to build a multi-story office building over the ground floor retail. I said great, do they have their entitlements? “Well not exactly but they are very close. Don’t worry. I will waive the policy”. Well about 6 months later, he came back to my office and said, “we have a problem”. Oh really, what problem I asked. Well, to make a long story short, the borrower had dug a three stories deep hole in the ground while they processed their approvals. The City received complaints from the neighbors that did not want the project to be built, so the City declined their approvals. The borrowers defaulted and we became the proud owners of a hole in the ground. We met with the neighbors to find out what they wanted to be built on the site, which was ground floor retail with a market. We designed the project, found the tenants, packaged the deal, sold it to another well-known developer, and included financing to build the shopping center. We recovered our money.
I Changed My Mind: We were approached by the principals of another Bank that had acquired two office buildings in San Francisco using the Banks funds. The regulators did not like it and gave them an ultimatum to sell the buildings prior to the end of the year or they would close the bank. The principals wanted to keep the buildings personally, so they first went to the market and received offers to buy them and then offered to purchase them themselves at the price of the highest bid. The regulators agreed. There was only one problem; they lacked the capitol. They approached us with a plan to liquidate other real estate and exchange their proceeds into the subject office buildings. The request was for us to finance the office buildings and other real estate so that they could complete the purchase on time and then do a reverse exchange as they liquidated their other real estate. We closed the first transaction 9/30 and the second on 12/31. It was a tightly structured deal that cross collateralized all the real estate and set release prices for individual properties that insured we would always be adequately collateralized by the remaining properties. Shortly after the second closing, the principals advised us that they had changed their minds and did not want to sell any properties. I worked on that deal for almost five years until we finally got repaid.
What Parcel: We were approached by a hospital that wanted to move its banking relationship to us. The only catch was that we needed to finance an on-campus medical office building that had just been constructed on a ground lease from the hospital. The construction lender wanted to be repaid if they moved their relationship. To sweeten the deal, the hospital agreed to subordinate the ground lease to our loan. The economics looked good, and we went to work. We reviewed the preliminary title policy and the ground lease and found a problem. They had failed to process a parcel map to define either the parcel or the required reciprocal easement agreements. This had all been done in the ground lease. If they subordinated the ground lease, then there was no underlying parcel. So, to make the deal work, we helped them process the parcel map and reciprocal easement agreements through the city, and then we were able to provide the loan and move the banking relationship.
Eternal Optimist: We had a developer we had done several deals with (including the rock pile). He was financially wiped out in the downturn in the late 1980’s early 1990’s. He lost his fortune, his wife, his house on the beach, everything. He was living in a small apartment with his new wife who was pregnant, he was in his 60’s. I saw him at a function, and he was the happiest guy in the room. I went over to him, said hello, and asked him how he was doing. His response stunned me. He said “you know I have had a great life, I built a wonderful company, had a marvelous wife and family but the real joy is in the journey. Now that I have lost everything, I get to do it all over again. How lucky can one person be.” I congratulated him on his good fortune.
Love What You Do: We banked one of the largest developers in LA. He built high-rise landmark buildings, numerous shopping centers, and thousands of homes including some master-planned communities. One of the real estate downturns hit him very hard. He was financially secure but was out of the development business for a while. I kept in touch with him, and after a few years, he just had to get back in the development business. He was in his eighties, and he teamed up with one of his buddies, also in his eighties and started buying tear-down houses in Brentwood to build high-end spec houses. One house at a time. I met up with him and his buddy one day to look at properties with them. They ran me ragged. They were enthusiastic and excited like kids at Christmas. This is what they loved to do. I thought we would be together for an hour, and it was all day. They were still going when I left. I went home and took a nap.
Collateral What Collateral:
A San Francisco developer was well known for his high-priced condo projects on Nob Hill and Russian Hill. We lent money on a few of his development projects, but like a lot of builders, his cash flow was tight. I put him on a restrictive disbursement system to make sure our money went to pay for improvements on our projects. He was insulted and went to Senior Management of the Bank to complain and demand a less restrictive disbursement system. Senior Management agreed and told me it would be fine. A week later, the first disbursement under the new system did not go to the subcontractors. Mechanic liens and boded stop notices were filed we were forced to stop disbursing. Senior Management called me and told me to fix the problem. I met with the borrower to discuss the issue. He needed capital and was prepared to offer other real estate as collateral for an additional advance. The project looked sound, and we proceeded to approve and fund another loan secured by this new collateral. He insisted on using a specific title company, one which we banked and knew well so we agreed. We got through our development projects. The projects were built and sold, and we were repaid. However, we still had this other loan. Suddenly the payments stopped. Then he filed for bankruptcy.
I did some quick research and found that the title policy we had received was in error. We thought we lent $5 million on an apartment building worth $12 million junior to a $2 million first. The new preliminary report I received showed we were in 5th or 6th position with over $25 million ahead of us. In other words, we were in real trouble. I immediately filed a claim against the original title company and demanded that they buy my position. They were not happy, but they complied. We were safe. Within weeks the situation deteriorated dramatically for the borrower. It was clear he had committed fraud and would be indicted shortly. One afternoon, he showed up unannounced at my office. He wanted to convince me that he had done nothing wrong. Title Companies get paid to take risks, he said. My office was near LAX. I heard the next day that he had fled to Israel. I think he went from my office to LAX and caught a flight to Israel. Israel would not extradite him, but he was eventually convicted of that fraud in Israel. The title company lost over $20 million. Turns out that the developer had a friend in the title company that produced fraudulent title policies to help him out. That employee was also convicted of fraud in San Francisco.
More Stories About Real Estate Transactions
Free Golf Course #1: One of our developers wanted to build a multiphase housing development around a golf course. We were fine with building the homes, but we did not want to end up with a term loan secured by the golf course. We worked with the borrower on his design and found a way to maximize the number of homes along the fairways. When we valued the lot premiums for homes on the golf course, we found that they would pay for the golf course. So, we went forward, built the homes and the golf course, and were paid in full from the sale of the homes. The developer ended up owning the golf course debt free.
Free Golf Course #2: One of our subsidiaries made a land loan on property adjacent to an existing golf course. The plan was to build another 9 holes surrounded by PUD homes. Great plan. One problem, the sight was covered with Oak Trees that could not be touched. That made development impossible. The borrower defaulted and we ended up as the proud owners. We then found a way to purchase a remote parcel of land that was also covered in oak trees, donated that parcel to a conservancy and received a density swap that allowed us to proceed. Then we needed to get the golf course built. We approached the owner of the adjoining 18 holes and offered to give them the land for the golf course if they built the new nine holes within 12 months. They agreed. Then we designed PUD homes and built the first phase to prove the market. Once proven, we sold the remaining land to a developer and provided construction financing for the homes. It turned out to be a profitable deal for the bank.
Not To Worry: A Senior Executive was a golfer with more golf memberships at private clubs than clubs in his bag. He came to me one day and told me we needed to lend money to build a new $20 million clubhouse at one of his clubs. That club was involved in a prestigious annual professional tournament but was at risk of losing it to another nearby club if they did not upgrade their clubhouse. I went to meet the owner/manager of the club and got in 27 holes in the process. I asked the owner what our collateral would be. He said I could have a first trust deed on all 27 holes. I asked him how he could do that since it was an equity club and all the members had ownership. He told me not to worry. He had the authority to subordinate their interest without their consent. So, if there was a problem, I could wipe out their interest and resell all the memberships. I reported this to the Senior Executive, and after he caught his breath, he thanked me and suggested I decline the request which I did. A few months later, the owner/manager was indicted for fraud in Japan for selling thousands of “extra” memberships in his clubs.
Show Me the Money: One of my old clients recently contacted me to discuss a new project. He was designing a new Skilled Nursing Facility (SNF) to handle the rehabilitation of patients. He found there was a need for modern rehabilitation centers to help Hospitals with their patients. Hospitals are penalized if they keep patients in their beds for extended periods. They are also penalized if they release patients who are later readmitted for the same issue. According to the borrower, there has not been a new SNF developed in California for over 30 years. This due to California building requirements and an extended approval process that can take 2 years and cost $2 million. When hospitals now release patients, they go to older ill equipped SNF facilities. Do not receive adequate care and end up back in the hospital. He asked me to investigate what financing would be available. He provided me with reams of information on equipment cost, staffing requirements, employee requirements, licensing requirement, patient referral estimates, patient classifications, service rates, and cash flow projections. He was excited that the local hospital, a big one, was really excited about the prospect of having a facility to reduce their bed stays without the risk of readmission. The hospital was so excited that they were referring their doctors to him as investors in the project. I investigated the hospital and found that it was losing money and had very little liquidity. Then I investigated the industry and found that similar hospitals had filed municipal bankruptcies to restructure their debt and were struggling to survive.
I reviewed his information and found that there were hundreds of assumptions in his cash flow that were based on third party studies of the hypothetical performance of a new SNF. I called him and asked if he could qualify for licensing the facility. He said no. I asked him if he had looked at the hospital's financial statement and he said no. I asked him if he was planning on operating the business and he said no. I suggested that he investigate these areas before he invested $2 million in the approval process. I also suggested that the hospital would be a primary beneficiary of the development and the most qualified to get licensed and operate it. He agreed. I then suggested that he approach the hospital to provide a commitment to either NNN lease the facility or outright buy it subject to receipt of a certificate of occupancy. This would provide a basis to get construction financing. I also suggested that these studies should be done by the hospital and that they should provide the FF&E so that they get what they need. I suggested that he was at a real disadvantage trying to put all these projections together when he was not in that business. He agreed. He then did some research on the hospital and made a proposal to them to purchase or lease the facility. The hospital went quiet for months. When they got back to him, they apologized for the delay but they had just changed CEOs for the fourth time in 2 years and the new CEO was trying to get his arms around the hospital's finances. They told the developer that they did not have the money to invest in or lease the facility. The developer has decided to abandon the plan to build an SNF and instead build a retirement center/assisted living facility.
The 40 Thieves: One of the realities of commercial real estate lending is that things do not always work out as planned. Lenders need to be prepared for the possibility of a default and the need to foreclose on their collateral properties. One basic rule is to not lend on a property that you would not want to own. Since most commercial real estate loans are recourse loans, the real estate is not the only source of repayment. The lenders’ ability to pursue other sources of repayment is dependent on how much they bid at a Trustee’s Sale. Foreclosure is a tricky business. There are numerous legal and procedural steps that must be adhered to. The lender can take no steps to market a property before the Trustee’s sale, this would “chill the bid” and possibly invalidate the sale. The foreclosing lender must be able to determine how much can be recovered from the subsequent sale of the subject property and only bid that amount at the sale to preserve a deficiency (balance due on the note) in order to later pursue other sources of repayment. Banks are highly regulated and certain accounting rules require the bank to keep two sets of books on problem loans. One set represents what the borrower owes the bank. The other represents the asset value for that loan on the bank’s financial statements. When a loan goes into default, the bank must place the loan on zero accrual. At that point, any payments received must be applied first to principal and then to interest on the bank’s books; however, it is applied first to interest then to the principal on the second set of books (what the borrower really owes the bank). This gets more complicated if the bank needs to write down (charge off all or a portion of their loan). Trustee sales are tricky. They occur at a specified time at a specified location. If you want to bid, you need to be there on time and come with either cash or cashier’s checks for the amount you want to bid. This part of the business is very challenging. I have had numerous experiences at Trustee’s sales. Here are a few of my favorites.
#1. We had a secretary that had been with the bank for a long time and wanted to buy a house but had a limited budget. We held a second trust deed on a small house that would be perfect for her. The first Trust Deed was in foreclosure. We decided to bid at the senior lender’s sale and then sell the house to the secretary. I was elected to go bid. This was my first Trustee’s Sale. When I arrived at the site there were several prospective bidders surrounding the Trustee. They physically blocked me from reaching the Trustee to register for the sale. They grabbed my arms, tripped me, and tried to pick my pocket. Anything to distract me or keep me from registering. I made it to the Trustee showed him my cashier’s checks and registered to bid. When the bidding started, the 40 thieves once again began to physically block me, hide me from the Trustee’s view and distract me by any means possible to keep me from bidding. I was the successful bidder. We got the house and sold it to the secretary. I learned a lot.
#2. We had a second trust deed on some raw land. The first trust deed was in foreclosure. We had plenty of equity in the property to repay our loan. However, we felt it was best to let the first trust deed foreclose and go to their sale to bid up the property. Any bid more than what was required to pay the first trust deed in full would come to us as the second trust deed holder.
The day before the sale we put together our bidding strategy and I had the cashier’s department prepare checks for about $2 million so I could bid. When I got the checks, I noticed that they said Official Check, not Cashier’s Check. I went to the manager of that department and expressed concern that the Trustee may not accept our checks. We called the Trustee; sent them a copy of the checks and we were advised that they were acceptable. So, the next day off to the sale I go with my Official Checks. I get to the site, and there are only three people there. The Trustee’s representative (not the person we spoke to), the first trust deed holder and me. I showed my checks to the Trustee so I could register to bid. He advised me that the checks were unacceptable. I told him we had already cleared them with his office. He said he didn’t care they were not cashier’s checks and did not qualify. I told him that this was going to lead to a nasty lawsuit and requested that he postpone the sale for 2 hours so I could get cashier’s checks. He agreed. This all happened privately, and the first trust deed holder did not hear the conversation. We went back to the courthouse steps, the Trustee announced the postponement, I ran off the steps to go get money and the first trust deed holder went into a rage at the Trustee telling him he was not authorized to postpone the sale. But it was done. They both followed me across the street, arguing between themselves all the way. I went into a local Title Insurance Company, called my Cashier and told them to get me cashier’s checks ASAP. Within an hour I had cashier’s checks delivered from two other banks, each brought $2 million. Now I had $6 million in my pocket. We went back across the street, held the sale at the prescribed time and I bought the property. The first trust deed holder was really upset. He could have made $1 million if the Trustee had not postponed the sale.
#3. We had an office building that was horribly mismanaged by the owner. It went into foreclosure. We had multiple properties as our collateral, so we had to put together a strategy to bid at the sale. We needed to bid up to the maximum that the property could support but not overbid. We settled on a starting and ending bid. The starting bid that was published was really low so we could stimulate bidding at the sale. My boss was excited and wanted to be the bidder. So, on the day of the sale my boss, the banks general counsel and myself show up to bid. There are three other bidders with around $6 million each ready to bid. The trustee announces the opening bid and off we go to the races. The three outside bidders are going at it bidding up the price. As we get close to “our number” the bidding slows. My boss then decides to join in to bid up the price. Before long we have passed our stopping point, but my boss kept bidding. The general counsel and I are looking at each other in disbelief but my boss keeps on bidding. Finally, the other bidders drop out and we are the happy owners. Wait, that was not the plan. We eventually sold the property to one of the bidders for less than he bid at the sale and rather than being paid in cash from the sale we financed the purchase. You can’t get greedy.
Another Inside Look at Client Successes and More
Do the Right Thing:
The S&L crisis of the mid to late 1980s provided some real challenges. Institutions were struggling to survive. We had a large unsecured credit line to a subsidiary of a major S&L. The S&L was in trouble. We knew it was only a matter of time before it was shut down, and we would suffer a major loss. My superiors cut a deal to purchase some highly leveraged real estate secured loans from the subsidiary by offsetting the outstanding balance of our loan. At least we now had some collateral. Very little due diligence was done on the front end. They brought me in to handle the transfer of these loans and get a handle on our new collateral. I was very disappointed. These loans were not the type of loans we would have made, and a few were in default. I went to my superiors to advise them we had problems and suggested that we swap out some of the collateral. They smiled, gave me a contact person, and told me good luck. I called that contact person and demanded that he swap out some the non-performing loans for other loans. The contact laughed and told me I was lucky to have anything. I tried my best to make him feel guilty and negotiate a solution, but he refused. Fast forward one month. That contact person was hired as the new Executive Vice President of our Real Estate Division and he was introduced to me as my new boss. He shook my hand and said, “nice try kid”. I figured my career was over, but I also knew I had done the right thing, so I resolved to accept my fate. Within a few days my new boss came to me and said “You know you were right about those loans. Now you need to fix the problems”
One of those loans was a large apartment complex in Colorado. The loan was in default, the project was in disrepair and occupancy was way down. I started foreclosure and appointed a receiver. During this time, I analyzed what was needed to make repairs, established a relationship with the property manager and waited to get my hands on the project to fix it. I went to Colorado for the Foreclosure Sale, took control of the project, set up new accounts, engaged the property manager and engaged a contractor to make the repairs. As I was leaving our attorney’s office I got into the elevator with a man and woman. They were taking about the man’s desire to buy apartment buildings. She was a Broker. I introduced myself, exchanged business cards and went to the airport. Within a week we negotiated a sale price and approved a new loan to the buyer. When the repairs were completed, I went back to Colorado to close the deal. We spent almost a week in the attorney’s office hammering out all the details and documenting the new loan. The borrower was very interested in politics and continually distracted by one of the Partners. His name was Gary Hart, and he had just dropped out of the Presidential race after the “Monkey Business” scandal with Marla Maples (who later became Trump’s second wife). My borrower would leap out of his chair every time Gary walked by so that he could talk with him. It was both distracting and comical. We closed the deal and the Bank got paid. My boss was very thankful that I cleaned up his mess. We had a very good relationship going forward for almost 12 years.
Classic Cars: We had a loan on a shopping center that lost some large anchor tenants. The project cash flow was tight, and the borrower refused to provide any capital or collateral to help fix the problem. I had a brief meeting with him and explained that we could only help him if he would help us. He stormed out of my office and the next day, I was notified he had filed Bankruptcy. I got our attorney involved and immediately took steps to secure our cash collateral (the project's cash flow) and initiate relief from stay proceedings so we could foreclose. When the borrower realized that we were not intimidated by the Bankruptcy he came back to the table to negotiate. He needed capital and we needed more collateral. We struck a deal to make him a new loan secured by a classic car collection. The Bankruptcy was released, the deal was restructured, and the borrower and I became friends.
Everybody Won: We ended up owning a partially improved housing tract in La Crescenta. The project had been graded and the pads cut but no utilities were installed, the street was not in, and the rains were coming. We needed to get that project sold and moving. We had a borrower that had two projects that he wanted us to finance. One we wanted to do and one we did not want to do. We suggested that if he purchased our problem, we would finance all three projects. He agreed and everybody won.
On the Sand: One day, one of our commercial banking officers and his client came to meet with myself and my boss. The client was a developer and owned and managed several coastal hotels. He had a new project on the beach near a pier with a new boardwalk that he wanted to develop. He also had a condo project and self-storage facility he wanted to build. We sat on the couch with the borrower, discussed the deals, ran some numbers, suggested loan amounts and terms for each deal and came to an agreement to move forward. We closed the deals to build the hotel and condo project exactly as we had discussed on the couch. The borrower decided to pass on the self-storage deal. We later did a few more transactions on other oceanfront hotels. It was a good meeting.
Hotel From Hell: One of our commercial banking offices made a loan to three very high-profile individuals to help them refurbish a Hotel Casino in a small town in northern Nevada. It was a first payment default. Since it was secured by real estate, it came to me. I reviewed the file and ordered a new appraisal. We were in second position and the property was barely worth the amount of the first trust deed. I went to see the property without disclosing who I was. It was an old run-down brick hotel in the middle of nowhere. It was over 250 miles from Vegas, Reno, and Salt Lake City. Getting there was an adventure. You either had to drive from one of these cities or take a small shuttle plane that also carried the mail. If there was a lot of mail, then passengers were bumped from the flight. When I got back to the bank, I was baffled. I could not understand why the borrowers purchased the property or why we made a loan. I did some research and found that the hotel’s business plan was to bus in people from Salt Lake City to gamble. They would provide a free bus trip to and from, free rooms, free meals, and a roll of quarters to start them gambling. Of course, the people were mostly Mormon and neither drank nor gambled. So, they got a free bus ride, free room and free meals then went home with a roll of quarters. I knew that there had to be more to the story. I contacted the borrowers, and they were totally uncooperative and arrogant. They thought I was rude to ask them to repay their loan. I started foreclosure and brought in legal counsel to appoint a receiver. This really aggravated the borrowers. I kept making trips to the hotel to see what was going on. Although the hotel was busy with free guests the casino was empty and the hotel had virtually no income. On my third or fourth trip I discovered that the hotel had a “special value” to the borrowers and that they were using it for “other purposes”. Armed with that knowledge, I knew if I continued my efforts to take the hotel from them that they would pay me off to get rid of me. On the eve of a court hearing to appoint the receiver that was to be held in this small town, we negotiated a settlement and entered into an agreement to postpone the hearing for 60 days. During this time, they would pay us in full. Now I had to get out of town. It was the middle of winter; I had flown in (so no car) and a blizzard hit (no commercial flights). We were all stranded. The next day the borrowers approached me, they had chartered a small plane to take them to Vegas and offered me a seat. I was desperate to leave, so I accepted and crossed my fingers. Getting on a plane with these characters was not a great idea. We made it to Vegas safely and the bank got paid within the sixty-day deadline.
Scream Before Your Hurt: There are a lot of negotiating techniques. I dealt with one borrower who always brought his attorney to meetings and let his attorney speak for him. Some people negotiate from strength and let the facts dictate the result. While others become emotional, and the facts don’t matter. They just want what they want. This attorney was of the second school and started every meeting by pointing out why they were innocent victims of the bank. I would listen carefully to his ½ hour opening statement that proceeded every meeting and then deal with the matters at hand. During the meetings, he would routinely roll his eyes, throw up his hands, and interrupt if I did not agree with him. Every once and awhile, the borrower would play the role of mediator. It was an interesting show. Over time, we developed a pretty good working relationship and even became friends but every time we met, it was the same routine. The attorney thought that if he screamed before he was hurt that I wouldn’t deal with the hard issues. He was wrong but he never stopped trying. It was his style. It got to the point that we would all smile and chuckle while he went through his routine, even the attorney.
The Godfather: I had one borrower who continuously wanted to renegotiate loan terms. I had several meetings with him. In each meeting, he would lay out his demands. I would respond and explain why it was not possible to do what he wanted but offer other solutions. This happened on a regular basis. One day he called and asked me to meet him that night in San Francisco at a two-story warehouse building he owned. When I got to the address and there was a well-dressed Italian gentleman who looked like a bouncer waiting for me. He took me into the building and opened a sliding metal cage to a freight elevator, let me in and closed the gate. He told me the borrower was waiting on the second floor. I arrived on the second floor. It was a vacant floor that was about 10,000 Sg. Ft., in the middle of the room was an old metal table, some chairs, a whiteboard, and a single light build hanging from the ceiling over the table. It looked like a scene from the Godfather. I was waiting for the offer that I could not refuse. On the whiteboard were the same demands we had discussed many times. We went through them one at a time and again, I explained why the Bank could not do what they asked and offered some compromise positions. We repeated this process about three times. It was getting late, and the borrower was visibly frustrated. He stood up, looked at me and said, “what am I going to do with you?” I said, it’s late and I am hungry, why don’t you buy me dinner. That ended the meeting, we had a nice dinner and he stopped asking me to do what he knew I would not. We stayed in touch for years after that.