Commercial real estate is entering a recalibration phase. Interest rates have compressed valuations, cash flows are strained, and lenders are taking a harder stance on refinancing. The old playbook — extend, pretend, and amend — no longer works.
Why Traditional Workouts Are Failing
Rising rates outpace income growth
Debt service coverage drops below covenants
Maturities collide with tighter underwriting
Sponsors lack liquidity for resets
Lenders aren’t incentivized to hold exposure to negative leverage. Borrowers aren’t positioned to inject capital. The only workable path forward is strategic restructuring centered on clarity, transparency, and analytics.
Insight Becomes Leverage
At Douglass Advisory, workouts begin with a forensic snapshot of the asset’s financial reality — not a hopeful narrative.
This includes:
Debt stack analysis
Rent roll durability testing
Cap rate sensitivity modeling
Refinance feasibility
Lender risk exposure
Data underscores narrative. Narrative drives negotiation.
The New Workout Framework
Assessment: Determine whether the asset can support near-term cash flow.
Restructuring Strategy: Identify affordability thresholds, reserve requirements, and lender protections.
Negotiation: Present a lender-centric case anchored in risk mitigation.
Execution: Structure for breathing room — interest-only periods, maturity extensions, or debt reductions.
Monitoring: Proactive reporting to preserve lender trust.
What Lenders Want in 2025+
Visibility
Predictability
Reduced downside risk
Sponsor alignment
The future of workouts is less about confrontation and more about collaborative reset, where both parties preserve value.