Y. David Scharf Quoted About Increase in Commercial Real Estate Litigation

February 8, 2018 – Morrison Cohen Partner Y. David Scharfwas interviewed extensively for the article “Market-Wide Distress Causes Finger-Pointing” that appeared in GlobeSt.com on February 7, 2018.

David, who last Spring predicted an increase in retail related lawsuits, sees continued litigation that will take on one of two facets:

I expect there to be continued litigation … related to the no-go-dark provisions in many of these leases, because it is truly is the only option for a landlord—to try to enforce those provisions. And the tenants are desperate to get out. In my practice, we have seen retail owners looking at every opportunity, any potential basis to find a constructive eviction in some way, shape or form to claim a breach of the lease by the tenant.

In addition to retail litigation, David notes an increase in litigation for development projects:

With developments that were completed and came to market during the second half of 2017, “we're starting to see less foot traffic coming through the doors, asking prices not being met, pricing being adjusted by the developers again and again,” Scharf says. “Unless there is incredible product differentiation at discounted prices, developers are not getting the volume and prices that they need to meet their pro formas.

“We're starting to see a lot of mezzanine loan debt trading from lenders to mezz loan traders who will buy mezz debt that is underwater at distressed prices with the intention of foreclosing,” he continues. “We're starting to see mezz lenders and senior lenders begin to talk about their inter-creditor rights, with mezz lenders sometimes looking to buy out the senior loan to protect their mezz positions.”

With pro formas not being met, equity investors are looking to see who is responsible for the distress:

“The market-wide distress causes finger-pointing,” says Scharf. “Once that begins, then people start looking under the hood, saying, “Somebody other than the market is going to be responsible for this,” so that they're not losing the totality or large portions of their equity.”