1. DISTRESSED ASSETS
HIDDEN RISKS,
HIDDEN OPPORTUNITIES
AND CURRENT TRENDS
September 28, 2010

2. Legal Perspectives – Rick Novak, K&L Gates
“This Time It’s Different” (Somewhat)
Then (1992) Now (2010)
10 Year Treasury 6.70% 2.55%
DJIA 3,301 10,740
Deal Modes “in substance” Modify and extend; DP0’s; “dual track”;
foreclosures bundle and sell; pull the trigger if no
valid restructure scenario
Regulatory Edict Mark to Market 2009 FFIEC Policy Statement (Banks):
- Bank Debt “Prudent Workout Policy”; Case by
Case Basis; ability to repay on
reasonable terms
Regulatory Edict N/A Revised REMIC Rules and Rev. Proc.
- Securitized Debt 2009-45 – DPO’s; wholesale the loan;
take it back; key for all; remain
“principally secured by Real Estate
Bankruptcy “The Wild West
Jack Warner “Back to Reality”
Threat”
Lender liability “We’ll Own the “They must be out of bullets”
Bank”
“Stay Alive to
“Zell”ism ’95” “Keep it clean to 2013”*

3. Legal Perspectives – Rick Novak, K&L Gates
Macro Trends
Opportunities Risks
• Fundamentals Not Getting Worse* • Fundamentals Not Getting Better,
• Interest Rates at historic lows either
• Banks and Servicers are moving • MANY CMBS and Bank maturities
on assets to go
• Some sense of pricing in many
markets

4. Legal Perspectives – Rick Novak, K&L Gates
Hidden Risk/Opportunity Areas
The Original Sponsor
Opportunities Risks
• Knows asset best • May have alienated tenants/unit
buyers
• Knows market best • May lack candor on key points or
have an adverse agenda
• May control existing/key tenant or • May be a “big picture” person who
franchisor relationships has laid off, all staff tracking
details

5. Legal Perspectives – Rick Novak, K&L Gates
Hidden Risk/Opportunity Area:
Permits
Opportunities Risks
• Permit issuers may be motivated • Undisclosed Conditions
to modify/extend
• Potential opportunity to build • Unfunded Exactions
credibility
• Sponsor doesn’t hold permits
• Imperfect Assignments

6. Legal Perspectives – Rick Novak, K&L Gates
Going-Forward Keys
Pricing Points – John Hancock Tower as a bellwether?
Macro • Interest Rates – Beware the “Law of Small Numbers”
• U.S. Bonds – still the “gold” standard?
• Employment
• How Many “Dips”?
• “Maturity Wave”
Micro “Event Risk”
Outrun the Bear

7. Legal Perspectives – Rick Novak, K&L Gates
What’s an Investor to Do?
• “There Are No fish in the Barrel”
• “Outrun the Bear” – Be the Local Survivor
• Bring Your Value to the Deal
• Know the asset
• Know the permits
• Have the potential tenant
• Cash (but at what cost?)