A Practitioner’s Guide to Defaults, Extensions, Discounted Payoffs and Getting Value Out of a Broken Loan
Julian R. Sterling
These are the companion files of The Real Estate Workout by Julian R. Sterling.The book on Amazon →
The four Excel workbooks that go with the book, corrected where they were wrong: the four ways out of one
broken loan, the enforcement and extension models behind them, and the diligence list with the decision record.
Around them: the same four models with the inputs emptied, thirteen working documents to print, forty questions
that mark themselves, and three cases the book names and never prices. Every number is a live formula, and
nothing is gated behind a sign-up.
Twelve workbooks, the printable documents and the read-me. Each group below can also be
downloaded on its own. Last revised 24 September 2026.
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These carry the book’s own figures, so that every number it prints can be traced to a live
formula. Each ends on a checks sheet that states its own verdict.
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Chapters 3 to 8 · the whole decision
Harbour Quay: four ways out, priced against each other
The whole book on four sheets. One broken loan — an office bought at a
4.50 per cent yield and refinanced into a 6.65 per cent market — and
four ways out of it, each discounted to today over its own timetable so that the four are
actually comparable. That comparison is what the book exists to make, and it is
the one a credit committee is almost never shown, because the four options arrive on four
different pages with four different horizons.
Go to sheet 3 and read the last line: 58.7 cents, the price at
which a discounted payoff exactly matches what enforcement would return. Then go back to
Assumptions and raise the forced-sale discount from 18 to 30 per cent. The indifference
point falls to 49.6 cents, and nothing about the building, the borrower or the loan has
changed.
That sensitivity is the negotiation. Whoever knows the number sets the range.
Revised: the consensual sale now uses Chapter 6’s own assumptions and gives the book’s
66.42 (the first file said 63.64, and nothing checked it); the provision per option and the
break-even probability, 47 per cent, are computed.
Enforcement, which every other option is measured against
Enforcement is the alternative every other option is priced against, and it is the one most
often estimated rather than computed. Four separate things destroy the value — the
forced-sale discount, the delay, the transaction costs and the cost of carrying the asset
— and sheet 2 shows each of them in euros and in cents on the euro of loan,
ranked. On the base case the largest is not the one people assume.
Sheet 3 is a two-way grid over the discount and the delay, in recovery and again in
indifference point: find your own view in the grid rather than arguing about a base case.
Sheet 4 runs the identical loan through six asset classes —
residential is repaid in full, a shopping centre recovers 31.3 per cent —
and prices a receiver against a share pledge, which is worth seventeen points. (Revised: the first
file let residential “recover” 102.5 per cent; a lender cannot recover more than it is
owed, and the surplus is now shown as the borrower’s. The book says nineteen points in three
places; the arithmetic, 73.5 against 56.3, says seventeen.)
At the bottom of sheet 4: what waiting a year costs. Even on an improving market it
loses money, and the break-even yield compression is 73 basis points a year.
Three years of cash flow with the lender’s cash capped at the income the building actually earns,
the shortfall added to the balance rather than quietly forgiven, capex funded by
the sponsor before any lender money, and an exit capped at the outstanding balance. The covenants
are re-tested each year, because an extension that breaches in year two has not been thought
through.
Sheet 4 is the sheet that matters: a grid over year-3 income and exit yield, against the
recovery on the payoff that is actually on the table. An extension that only works in one corner
of that grid is not a plan, it is a hope with a term sheet attached. This one beats the payoff in
every cell, down to 69.3 per cent against 69.0; and if the letting plan fails outright,
with income flat at 5.15, it still returns 74.52, where the book says it returns less than enforcement.
Revised: the first file counted 1.24 a year of amortisation on top of income already spent on
interest, and never paid out the 1.5 of capex the lender advances — the lender “received”
6.39 in year one from a building earning 5.15. With the cash capped at the income, as Chapter 33
says it must be, the extension is worth 80.33, not 81.75, and repays in full only up to a
6.69 per cent exit yield, not 7.01.
Also inside, and left out of most workout analyses entirely: the swap mark to market, and what
the sponsor guarantee is actually worth once the solvency discount, the time discount
and the years it takes to collect are applied. On this file that is
4.8 points of recovery, against a headline cap that suggests far more.
The eighty diligence questions as a live checklist — the same eighty, generated from
the same source as the appendix, so the book and the workbook cannot drift apart. There are
columns for the answer, the source document, the owner and the date, and the
status column marks anything answered without a source as unsourced. A question whose
answer is “the borrower says” is not answered.
Then the one-page decision record, and the committee paper’s switching values: the level
of each input at which the recommendation changes. Five lines, and the committee knows exactly
how wrong it can afford to be. Revised: the five values were typed in and checked against
themselves; they are now computed from a model under the table: 94.9 million, 0.47 years,
0.6 per cent, 10.29 per cent (not 11.48) and 5.01 per cent.
Do not work through the eighty in order. Start with sections three and four — cash and
income — because those can be answered from documents rather than from the borrower.
The reason a workout committee argues in circles is that the four options are never presented on
the same basis. Enforcement returns cash in two years; an extension returns it in three or four;
a discounted payoff returns it next month. Comparing a recovery percentage across those three
timetables is comparing nothing at all.
Discounted to today over its own timetable, the same loan gives
enforcement 46.42 (56.3 per cent), a consensual sale 66.42 (80.5), the extension
80.33 (97.4), and a discounted payoff at the price on the table 56.89 (69.0). The
extension wins here, but it is a three-year plan against cash in six months: it is the better choice
only if the letting plan is more than 47 per cent likely to work.
The line that changes a negotiation
58.7 cents. Below it a discounted payoff is worse than enforcing; above it,
better. A borrower offering 55 is offering less than the lender’s own alternative, and a
lender demanding 70 is asking for more than its alternative supports. Neither side normally knows
the number, so the range gets set by whoever is more confident — which is not the same thing
as whoever is right.
It also moves. Nine cents on the forced-sale discount alone, from 18 to 30 per cent. That is why the workbook makes the
discount an input rather than a house assumption, and why the honest way to take this into a
meeting is with the grid rather than the point.
What the checks caught, and what they could not
The extension model originally forgave the unpaid interest instead of adding it to the
balance, and the checks sheet caught it: 79.86 against the 81.75 the book states. Both the book
and the workbooks now capitalise the shortfall, which is what the loan documents would do. The
recovery moved from 96.8 per cent to 99.1, and the error had been in the direction that
flatters the lender — which is the direction errors in workout models usually run.
The same model had a second error that no check could catch, because the book printed the same
figure: the lender’s cash was the whole income plus 1.24 a year of amortisation, and the
capex it advances never left its pocket. Capped at the income, the extension is worth
80.33, not 81.75 (97.4 against 99.1 per cent), and the balance at the exit is 86.74.
The ranking does not move. Again the error flattered the lender. A check only tests the model against
the book; when both share the mistake, the only defence is recomputing from the rule.
The same models, for your own loan
The four workbooks with every input emptied. The checks sheets count what is still missing and test what holds for any inputs.
Chapters 1 to 7, 15, 24, 26 and 28
Your loan, your building, your offer
The four options, the enforcement bridge, the extension and the committee paper’s switching values, with the same formulas and every blue cell emptied. The grid steps, the six sector profiles and the two enforcement routes stay: they are the book’s comparisons, not your loan.
The book’s inputs are listed in a text file inside the archive. Type them back in and its figures come back with them: 46.42 for enforcement, 80.33 for the extension, 58.7 cents.
Thirteen pages to print and use. A4, with margins wide enough for US Letter.
Chapters 3 to 38 · Appendix D
Thirteen working documents
A broken loan in ninety minutes, with the split between income and yield and the covenant table. The four options on one page, with the indifference point, the break-even probability and the provisions. Pricing enforcement, deduction by deduction and route by route. The extension year by year, with the four rules that keep it honest. The first thirty days. The standstill. Documenting an extension, a payoff and a sale. The twelve clauses. The information you will not be given, with the rent-roll tests. Before accepting a payoff: the source of the money, the hedge, the guarantee and tax. The credit committee paper. The decision record and the twelve mistakes. And when there are other parties: the syndicate, the mezzanine, a second jurisdiction and a servicer.
A workbook that marks itself. Answer in the yellow cells; the marking fills in as you go.
All parts of the book
Forty questions on the book
Six on the loan and the fall in value, seven on enforcement, seven on the extension, seven on the payoff, the sale and the negotiation, seven on the rest of the file, and six on the three cases below. Numbers are marked to a tolerance, multiple choice to the letter, and the score sheet counts your errors part by part: that is your revision list.
Nothing is hidden. The marking sheet holds every answer, every tolerance, and the reason for each answer.
New material, not a restatement. Three situations the chapters name and never take to a number. Each case is one workbook: the note is the first sheet, the model is the rest, and a checks sheet closes it. Type your own figures in and every finding recomputes.
Chapter 28 · Case one
Waiting, when the building pays its way
Chapter 28 prices a year of waiting with the lender funding the carry, finds that yields must tighten by 73 basis points, and says that if the building pays its way “the break-even falls sharply”. How sharply: with the trapped rent reaching the lender, to about 5 basis points. The chapter’s 25 basis points pay once 73 per cent of the rent arrives (a threshold, not an ADDED forecast). And even a receiver collecting every euro of rent for the whole enforcement would reach 56.54, still short of the offer’s 56.89.
The chapter tells the senior to budget 1.5 million to buy out a 12 million mezzanine “entitled to nothing”. It is entitled to nothing in every option but one: if the extension works, the surplus at the exit is 6.08, worth 4.70 today. So 1.5 is a fair price only if the plan is less than 32 per cent likely to work; at an ADDED 50 per cent the range runs from 2.35 to 14.02, and below a 24.6 per cent chance the whole manoeuvre loses to enforcement.
Chapter 27 · Case three
Four lenders and one decision
The originating bank, the insurer, the debt fund and the small bank, each against its own book (holdings and carrying values ADDED). Enforcement is a loss for all four. The insurer can be bought out: a zone of 3.04 million between the payoff it wants and what a buyer at 15 per cent pays. The small bank cannot: it carries at par and no buyer pays more than 97.4. What gets its signature is a senior strip money-good in every scenario: enforcement’s own 56.35 of cash covers its holding 4.6 times. On the way, a correction: the debt fund bought at 64 cents, not the 74 the book prints, at which the 72-cent offer would be a loss.
Conventions used throughout
Blue on a pale fill
an input — you may edit these
Black text
a formula — do not overtype these
Yellow fill
the assumptions that carry the answer
Checks sheet
the last sheet of every workbook: each control states its own verdict, and the file ends ALL OK
ADDED
a figure the book does not give, used in the cases and marked wherever it appears
Amounts are in millions of euros. Harbour Quay is fictional, and deliberately ordinary
rather than extreme: it is the commonest broken loan there is. 149 checks across the four
workbooks, and every one passes: the figures the book prints, each to the precision the
book prints at, and the identities that hold for any inputs — a figure printed to two decimals is checked to 0.005. The rule behind those
sheets is the reason to trust them: if a check fails, the model is wrong until proven
otherwise, not the book.
Go beyond the companion files
The Real Estate Workout develops the complete framework behind these models, with the assumptions, trade-offs and worked examples tied together.
The workbooks open in Microsoft Excel, LibreOffice Calc, Google Sheets and Numbers; the PDF
prints on A4 or US Letter. They use no macros and no add-ins, so nothing needs to be enabled or trusted. If your spreadsheet asks
to update links on opening, decline — there are none.
What changed, and when
24 Sep 2026
The four workbooks corrected; each now ends on a checks sheet, 149 checks in all, ALL OK. The extension capped at the income the building earns: 80.33, not 81.75 (recovery 97.4, not 99.1). The consensual sale on Chapter 6’s own assumptions (66.42, not 63.64). Residential recovery capped at the loan; the share pledge worth seventeen points, not nineteen; the switching values computed, not typed. Added: a blank set, thirteen working documents, forty questions that mark themselves, and three cases.
Articles on this book
What a month of delay costs in an enforcement463,000 euros of present value a month. No single error about enforcement, and no pair of errors, moves the indifference point from 58.7 cents to the 72 on the table.
Closing the DealTwo defensible bridges 20.70 million apart, a peg worth 7.00 million, and the six choices that remove 6.60 of a 12.00 earn-out.
CMBS and CRE CLOsWhere the loss actually lands, from appraisal reduction to realised severity, and what the B-piece is really being paid for.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Credit AgreementWhere the default actually comes from, the cure that costs 5.5 times the other, and the capacity nobody adds up.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Private Equity Real EstateBoth worked waterfalls to the dollar, the two capital stacks, and the arithmetic of the promote made changeable.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
Raising a Real Estate FundThe chapter 17 funnel run on a calendar — when the first close actually lands, and why more travel does not help.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Real Estate Financial ModelingProperty, development and fund models built line by line, and the modelling test worked end to end.
Real Estate Fund ManagementThe waterfall of 6.11, the build-to-core of 8.7 and the proceeds gap, reproduced as live formulas rather than asserted.
REIT Analysis and ValuationFFO of 532.0, AFFO of 381.0, net asset value and dividend safety — every figure a formula you can change.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
The Growth Equity InvestorWhat a pro rata cheque really costs, and the band where defending your ownership loses money.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Venture Capital AssociateWhat defending a position costs, and how many companies a reserve pool actually defends.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
Construction Cost ControlA contract sum of 26,301,102 became a final account of 29,153,363 on the building that was drawn — and 85.8 per cent of what was lost was knowable on the day it was signed.
Pricing StrategyA list price of 148.00, a pocket price of 112.51, and the nine deductions in between — with what one point of price is actually worth.
Trade FinanceSix routes to payment on one 4,200,000 export order cost between 178,040 and 223,268, a spread worth 14.8 per cent of the margin, and a day of buyer credit costs 1,031.76.
Cost AccountingOne factory costed twice on the same 13,440,000 of overhead, and 4,053,091 moves between four product families.
Contract ManagementA bid 5.50 a unit cheaper, signed on paper worth 9.81 a unit more — and 94.68 per cent of it was knowable on the day of signature.
Capital MarketsFour defensible readings of one bond, the cost of an issue under each convention, and the placement discount computed at a constant discount.
Financial RegulationThree ratios pass and the fourth is in breach by 1,956.0 million: the output floor, the liquidity buffer after encumbrance, and the loan split.
Bank ManagementFour defensible readings of one balance sheet, the deposit beta measured two ways, and the liquidity that lasts 3.9 days.
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