Are the guys who run this firm ruined? From what I’ve read, they personally guaranteed tens of millions in loans at minimum.
More importantly, how would the terms of a recourse vs non-recourse loan differ, all else being equal? Is that the difference between a few bps worth of interest or what?
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Probably not screwed. But no one can really answer that question as none of us have access to the financials of the people guaranteeing the loans. Additionally, a recourse loan may not be fully recourse. It could be 25%, etc. Meaning, a $100MM loan, they only guaranteed $25MM. And than it begs the question is it the top $25MM or bottom $25MM. Basically what this mean is, if the lender takes the asset and sells it for $74,999,999, the sponsor owes $25MM to make the lender whole. If it’s the bottom 25%, the sponsor owes nothing.
Developers go belly up all the time, some come back, some don’t. Generally, lender don’t want projects back - if they do take a project back, now it comes down to what a lender can sell it for. For all we know, the lender will sell the project for more than the loan and the recourse doesn’t matter.
In terms of how the terms of recourse loans vs non-recourse differ. Non-recourse will be more expensive. This could be 50 bps, it could be 100 bps. It depends on the strength of the borrower, the market, etc. Additionally it depends on if it is fully recourse or partially recourse. So end result, it’s hard to answer your question because it’s deal dependent. But providing recourse will 100% lower the price on the loan.
To be fair, with personal recourse in place, banks are far more likely to take back assets, because the results of a distressed sale are immaterial, since the guarantor is making up the difference (subject to all the conditions you mention).
Moreover, if some of these buildings are finished or near-complete, it's a different story.
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