Weekend Interview: Rosenberg & Estis’ Michael Lefkowitz On More Distress And Why Extending Isn't Pretending

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An attorney whose workload has almost completely shifted from representing clients in commercial real estate transactions to handling loan distress and workouts between lenders and borrowers could easily have a pessimistic view of the industry.

But that’s not the case for Michael Lefkowitz.

Lefkowitz, a managing member of New York City-based law firm Rosenberg & Estis, has seen several real estate cycles come and go over his 35-year tenure.

Over that time, he's been involved in litigation, appeals and administrative law,  typically specializing in helping lenders and borrowers to complete financing transactions on all levels of the capital stack. Now, workouts of loans on troubled assets are the focus.

His experience led him to eschew mantras like “extend and pretend,” and remain confident in a soft landing, he said.

“I don’t think anybody’s pretending,” Lefkowitz said. “A lot of times, when you’re extending loans, you're doing it in the best interest of the asset, the best interest of the players involved.” 

By prioritizing communication and honesty, Lefkowitz said it’s unlikely that most buildings will have to be handed back over to lenders through foreclosure despite plenty of ink spilled on the coming “wall of maturities.” But with trillions of dollars of debt expiring in the next two years, he’s likely to stay busy. 

This interview has been edited for length and clarity. 

Bisnow: How did you get into the real estate law industry? 

Lefkowitz: My family. My grandfather was in the real estate business. My father was an acting New York State Supreme Court judge. So I took my career and melded both real estate and the law, and 35 years later, this is what I’m doing. 

Bisnow: Was there a specific time, like around when interest rates shot up, that you noticed a large increase in people seeking solutions because of distress?

Lefkowitz: Yes, without a doubt, you saw that it became a less vibrant, less active market in terms of the availability of debt. So there were certainly less trades of the assets.

You had appraised values of these assets be greatly hindered by the fact that you can no longer bring [New York City] units to market rents in a manner in which you could before the changes in the law [the Housing Stability and Tenant Protection Act of 2019]. So absolutely, there's been a dramatic effect on values, and you started to see it by a slowing sales market. 

Bisnow: How much has your workload shifted toward handling distress rather than more traditional transactional cases?

Lefkowitz: Rosenberg & Estis has been around for 50 years. I’ve been at  Rosenberg & Estis for 35 years. So although I haven't seen all the cycles, I've seen a number of cycles. Us as transactional lawyers have to reinvent ourselves based on market conditions.

I’ve had a number of occasions throughout my career where I've had to focus more on workouts, on helping clients through negotiations with lenders, with investors, with tenants, quite frankly, commercial tenants, when we have markets that are not favorable to owners and landlords. Right now we are in one of those times. 

Bisnow: How do you prepare to help clients in these situations? Were there any past cycles and experiences that you feel benefitted you to handle today’s environment? 

Lefkowitz: Real estate has always proven itself to have economic cycles, just the way general economies go through certain cycles. A lot of what's important for owners is to be able to keep control of the assets, be able to have enough fortitude to fight through these difficult times knowing that the asset class that they're in — whether it be multifamily, industrial, retail office — will see a better debt. 

There will be a time again in which lenders are lending, interest rates, as it relates to revenue, find a better equilibrium. And the general economy is supporting real estate as a key component of the economy in a positive way, so it's helping our clients hang on. That is really the most important thing in surviving any time of distress or economic downturn.

Bisnow: What is one of the more creative solutions you’ve helped implement for lenders or owners dealing with distress?

Lefkowitz: There are no tricks in the trade. There really aren’t. What I try to counsel my clients on is communication, whether that's communication with your lenders, communication with your tenants, communication with your investors.

Having everyone understand that you are committed to the asset, you're committed to see this through. However, given cash flows, given current situations, there may not be liquidity enough to support the debt, to support the investment, to fund tenant improvements in a way in which you would have normally done and was part of your original business plan. Getting all of the parties to understand that you're committed as a landlord.

When representing a lender, it’s “What is your game plan? What is the end result for you in terms of the asset?” Is it an asset that a lender wants to own and manage, or is it an asset that the lender wants to see work through and try to mitigate losses the best they possibly can by working through with the owner? 

The key is communication, asking the right questions and putting forth a commitment to working things through for the best interest of all the parties involved. 

Bisnow: The Federal Reserve finally cut interest rates recently. Has this had any impact on negotiations between lenders and borrowers? 

Lefkowitz: [Some have reported] that there’s been an increase in foreclosure filings. There was a cut in the Fed rate, but the interest rates for borrowing on real estate, the treasury rates, have not really reflected that cut in a positive way. Some of it could be the uncertainty around our Presidential election. Some of it is forces beyond our borders and maybe what’s happening globally. There’s so many varied reasons.

You really have not seen an increase in the amount of lending going on, nor have we seen some tremendous decrease in interest rates that have resulted in all this new opportunity for real estate players. 

Bisnow: Are lenders and banks approaching loan maturations differently now than they were six months to a year ago?

Lefkowitz: Sure. You’re having more debt maturities. There are trillions of dollars of debt that are going to mature in the next 12 to 24 months. What do you do with all of that if you can’t find a place to refinance it?

You can’t find a buyer because that buyer can’t find a loan. You almost have a situation of musical chairs. I think in this cycle, like other cycles, the music won’t completely stop. This idea that more assets are going to end up in lenders’ hands than don’t, I don’t think that’ll happen, nor would I want to predict what any market would look like if that was in fact the case. 

Bisnow: Some have said the era of ‘extend and pretend’ is over. Is it?

Lefkowitz: It goes back to what are each of the stakeholder's objectives in any kind of particular workout? There have been a number of stories saying there’s been an increase in the amount of foreclosure actions of commercial real estate filings. Sometimes those are filed to protect rights and remedies, but with the thought of actually still working things out and working things through.

I don’t particularly like the nomenclature ‘extend and pretend’ because I don’t think anybody’s pretending. A lot of times when you’re extending loans, you're doing it in the best interest of the asset, the best interest of the players involved, to get to a time in which the lender can realize as much as they can on its investment or its debt, and anything that it might have accrued during the difficult times, as well as for the borrower to not lose the asset.

One of the things for borrowers that’s very difficult is if you have a very low basis in the building and you lose that building, you have a debt forgiveness problem. So it becomes a serious tax consequence.

Nobody is pretending. I think bankers and owners are working through issues in good faith. My hope is that that continues. There will be lots of cases of foreclosure, of borrowers handing back the keys of deeds in lieu of foreclosure, investors taking and wrestling control from a sponsor partner because they don't like the way in which the asset is being run or handled. During these times, there'll be lots and lots of that, and I still think there's more of that to come. But the majority of these situations will not work themselves out with those types of disputes, they'll work themselves out by there being some cooperation and understanding. 

Bisnow: Give us a bold prediction for the rest of the year.

Lefkowitz: The bold prediction is that we have a civil, orderly change in leadership at the national level. That’s one. Two, is that we all in the real estate world are able to survive through ’25. And if we’re able to do that, I think we’re going to be in a much better, different, good place in the real estate world. 

Bisnow: Since this is the Weekend Interview, what do you like to do on the weekend? 

Lefkowitz: Play golf.