When Multifamily Deals Go Sideways: A Real-World Guide to Surviving the Crash
By Mark Kenney | Think Multifamily
Let’s Get Real About Distressed Deals
No one buys a multifamily property expecting disaster. But in this market, if you’re holding a floating-rate loan, there’s a very real chance your deal is bleeding cash.
How do I know? Because I’ve been there—on both sides.
I’ve sponsored over 120 deals. I’m also a passive investor in dozens more. And recently, I’ve had three experienced syndicators call me within two weeks, all asking the same question:
“What do I do now?”
If your property is in distress, this blog is your no-fluff guide. You’ll learn what to assess, what questions to ask, and how to potentially protect your investors—and your reputation—before things spiral further.
1. Know Your Lender—and What They Want
Not all lenders are the same. Some are open to collaboration. Others? They're ready to take your property.
Real examples from our portfolio:
One lender told us, “We’d rather take the property and run it ourselves.”
Another said, “Let’s work together to find a solution. We’re not operators.”
⚠️ Watch for red flags:
Threatening emails or calls
Default notices demanding loan payoff or foreclosure
Radio silence when you ask for support
What’s their endgame? And what’s your personal exposure? These are questions you must answer fast.
📞 Book a Consulting Call to talk through your options.
2. Evaluate Your Options (Even If They’re All Painful)
🔍 Sell the Property (BOVs Aren’t Gospel)
A Broker Opinion of Value (BOV) is a great place to start—but don’t take it as law.
We’ve seen:
BOV: $11M–$13M → Actual Offer: $9.4M
BOV: $19M–$21M → Actual Offer: $17M
And these were stable properties. If your deal is struggling? Expect lower numbers—and higher costs to exit.
🧾 Factor in:
Broker commissions (if selling)
Legal fees
Tax prep
Accounts payable
Know your real costs before pulling the trigger.
🔁 Sell on Loan Assumption
Sometimes, a buyer will assume your loan—typically removing you from the debt. This can be a clean exit, especially if:
You’re removed as a guarantor
You avoid foreclosure
You cap your legal exposure with your lender
🚨 But be cautious:
You might still need to cover closing shortfalls
Some buyers will offer a “Hope Note”, where your existing investors “hope” to recover money later.
Hope Notes sound promising—but can carry tax, legal, and investor trust issues. If you’re not 100% sure what you’re agreeing to, don’t sign anything yet.
📝 Consider a Loan Modification
This typically starts with a Pre-Negotiation Agreement (PNA). Read it. Get legal review before you sign.
When considering a loan modification ask:
Are the new loan terms realistic?
Has this lender worked successfully with other borrowers?
Will this actually stabilize the deal—or just delay failure?
I’ve seen loan mods save deals—and others destroy deals. Know which kind you’re looking at.
🔄 Refinance (You Might Need Deep Pockets)
Let’s be real—most refinances today don’t pencil because:
Leverage is down
Rates are up
Scrutiny is up
Values are down
So, in order to pull off a refinance you will likely need to bring some cash to the table. The advantage? Fixed rate, long-term predicable debt at a lower interest rate.
Ask yourself:
“Does this save the deal, or am I throwing good money after bad?”
💰 Capital Call or Member Loan
Need cash fast? Two paths:
Member Loan: LPs lend money and get repaid first with interest (if funds exist)
Capital Call: LPs contribute more equity or risk dilution
🚩 Warning: Your Operating Agreement dictates what’s allowed. Review it carefully. And consider which route your investors are more likely to support.
🤝 Bring in New Investors
Bringing in new capital sounds appealing—but it can backfire.
New investors often want:
Priority returns
High returns
Voting rights
Management changes
Before you take this route:
Review your operating agreement
Know your authority as the manager
Communicate clearly with existing LPs
This is as much a relationship decision as a financial one.
🔚 Deed-in-Lieu of Foreclosure
Sometimes, handing the keys back is the cleanest option.
But know:
It doesn’t always erase personal liability
Investors need to be fully informed
Legal and tax consequences vary by state
This can help preserve your credibility—or ruin it if mishandled.
⚖️ Foreclosure
There are two types:
Judicial Foreclosure: Goes through the courts, takes longer
Non-Judicial: Faster, only allowed in certain states
Key questions:
Should you fight it?
Do you understand your exposure?
What are the investor-level consequences?
Again—don’t guess. Get legal and strategic guidance before reacting emotionally.
Final Questions to Ask Yourself
Before you make any move:
What A/P must be paid before closing?
Where do escrow reserves go?
Who controls the remaining bank balances?
Are you personally on the hook post-close?
These are the details that make or break your exit.
Legal Landmines to Watch For:
Legal fees just to close a bad deal
Vendor suits and liens
Post-close liability for actions after disposition
Whether you should dissolve your LLC or keep it open
The goal is not just survival—it’s protecting your name and your future.
🧠 Don’t Navigate This Alone
There’s too much at stake to guess your way through a failing deal.
Your investors are watching.
Your lender is moving.
And one wrong decision can follow you for years.
📞 Book a consulting session with Mark and let’s get you clarity—fast.
Because surviving this deal could be what earns you the next one.
Think Multifamily
Real Deals. Real Lessons. Real Leadership.
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