In today’s commercial real estate market, the smart capital isn’t simply chasing new deals—it’s restructuring the existing ones. As interest rates stay elevated and valuations face pressure, distressed loans and troubled assets are emerging as one of the most compelling areas for value creation in 2025. That shift places lender workouts and forbearance strategies at the center of how institutional and private investors convert stress into upside.
At Performance Advisory Group, our experience helping reposition over $14 billion of transactions has shown that going from forbearance to workout to profit is not only possible—it’s where real returns are being built.
1. The Distinction: Forbearance vs. Workout
A key first step is understanding the difference between a forbearance agreement and a full workout/restructuring:
- A forbearance agreement typically allows a borrower facing default to postpone or reduce payments for a limited period, while the lender agrees not to exercise remedies like foreclosure in that time.
A workout or restructuring agreement, on the other hand, often involves a more permanent renegotiation of the loan terms—extending maturity, resetting covenants, modifying interest or amortization, or injecting new collateral.
In practice, forbearance is a bridge—a short-term relief. Workout is the destination—a long-term strategy. The challenge for investors is to convert that relief into real value.
2. Why the Timing Is Now
Several macro trends have converged to make workouts highly attractive in 2025:
Rising debt maturities + elevated interest rates: Many CRE loans are maturing at times when refinancing is difficult, making the original structure unsustainable.
Falling valuations and rental pressure: With lower asset values and weaker cash flow (especially in office, retail, and hospitality sectors), borrowers are more likely to default or require restructuring.
Lack of competition for distressed debt: As many investors focus on “buying new deals,” fewer are positioned to navigate the complexity of workouts—creating an edge for those who can.
What this means: the opportunity isn’t just about buying cheap—it’s about being the capital that steps into the hole, works with the lender, and captures the upside.
3. Key Steps to Navigate a Workout Successfully
Here are the essential actions investors and sponsors must take to transform forbearance into profit :
A. Conduct a deep loan-file & collateral review
Lenders will evaluate everything from default history, borrower viability, collateral value, environmental and title risks, to guarantor strength. Doing this upfront gives you leverage in negotiation.
B. Secure a Pre-Negotiation Agreement (PNA)
Before full workout terms are drafted, a PNA helps set expectations and preserves lender rights while you engage in discussions.
C. Choose the right structure: forbearance + modification + recapitalization
Rather than just deferring payments, the best workouts combine elements: modified payment schedule, interest-only periods, term extension, additional collateral, or even an equity kick-in from the sponsor.
D. Align interests between lender, borrower/sponsor, and any new equity or mezzanine capital
Successful workouts often require all parties to share a common goal: preserving value and unlocking future upside rather than forcing a fire-sale.
E. Set clear milestones and reporting/monitoring controls
Forbearance or workout agreements should include triggers, performance metrics, and covenant relief mechanisms. Non-performance should revert quickly to take-back or enforcement rights.
F. Stay ready to exit or convert to performance equity
Once stabilized, the loan can be repaid, refinanced, or converted into a new equity position—this is where profit is realized.
4. Real Value Creation: The Upside of the Workout
Here’s how investors extract value:
Reduced acquisition cost / better pricing: Buying or stepping into the workout allows capital to enter at a basis below replacement cost.
Improved basis via restructuring: Refinanced terms, extended amortization, or equity pay-in create a stronger position.
Capture cyclical upside: Once stabilized, the asset is poised for market recovery—whether via sale, recap, or conversion.
Limited competition: Distressed workout situations demand time, relationships, and operational capability— fewer players means better terms.
In our experience at Performance Advisory Group, workouts are not just “rescue operations”—they are strategic plays that unlock value others overlook.
5. Common Pitfalls & How to Avoid Them
Waiting too long: Delayed engagement means less leverage and fewer options.
Ignoring lender documentation gaps: Title defects, UCC liens, or missing guaranties weaken negotiating position.
Assuming all workouts are the same: The collateral type, borrower history, and market context matter significantly.
Underestimating time/cost to stabilize: Operational improvement often takes longer than expected—plan accordingly.
Not aligning exit strategy from the start: Without a clear end-game (sale, refi, equity conversion), the value may get eroded.
At Performance Advisory Group, we’ve restructured over $14 billion in transactions—turning workouts into profitable opportunities for investors. Explore our strategy and case studies on our website.
👉 If you’re a sponsor, investor, or lender ready to convert forbearance into profit, DM us now and let’s build the roadmap together.
Conclusion
Forbearance is the timeout. Workout is the rebound. And profit lies in how well you navigate the sequence from stress to strategy. In 2025’s market environment, value isn’t hidden in buying new—it’s hidden in restructuring what exists. The capital that wins is the one that knows how to negotiate, restructure and steward through the cycle.
Unlock the opportunity. Let’s get strategic.
