Honigman Miller Schwartz & Cohn, along with their client Schostak Bros. & Co., retained AEG to assess the effects on the Michigan economy that would stem from a legal precedent upsetting the traditional balance between business collateral pledged for commercial loans and the personal assets of investors.
To produce the deliverable, AEG summarized available data on commercial retail and office development lending in Michigan, and identified the amount of outstanding loans that were “underwater” or with very high loan to value ratios. The assessment illustrated the large number of commercial properties that were in precarious financial situations. We then gave consideration to a legal precedent that causes any technical insolvency to trigger default or claims on personal assets. Among the consequences we found were fewer financing opportunities for small businesses that rely on borrowing; a chilling of investment in commercial real estate; and an added downward pressure on commercial real estate prices as refinancing and new financing became much more risky for investors.
The discussion was provided to the client in a memo, including an internal memo discussing the commercial real estate market in MI and the U.S., and an excerpt from a study done by the Chicago Federal Reserve on Fed actions during the financial crisis. This provided the foundation for the Michigan Chamber of Commerce to files an amicus brief on appeal. The brief was instrumental in the passage of clarifying legislation and in an Appealls Court ruling finding that individuals are not personally responsable for the balance on a defaulted loan made to a company.