CNSREIT-AR-2024 Final - Flipbook - Page 68
We may find it necessary or desirable to foreclose on certain of the loans or CMBS we acquire, and the foreclosure
process may be lengthy and expensive.
We may find it necessary or desirable to foreclose on certain of the loans or CMBS we acquire, and the foreclosure
process may be lengthy and expensive. The protection of the terms of the applicable loan, including the validity or
enforceability of the loan and the maintenance of the anticipated priority and perfection of the applicable security interests
may not be adequate. Furthermore, claims may be asserted by lenders or borrowers that might interfere with enforcement
of our rights. Borrowers may resist foreclosure actions by asserting numerous claims, counterclaims and defenses against
us, including lender liability claims and defenses, even when the assertions may have no basis in fact, in an effort to
prolong the foreclosure action and seek to force the lender into a modification of the loan or a favorable buy-out of the
borrower9s position in the loan. In some states, foreclosure actions can take several years or more to litigate. At any time
prior to or during the foreclosure proceedings, the borrower may file for bankruptcy or its equivalent, which would have
the effect of staying the foreclosure actions and further delaying the foreclosure process and potentially result in a reduction
or discharge of a borrower9s debt. Foreclosure may create a negative public perception of the related property, resulting in
a diminution of its value, and in the event of any such foreclosure or other similar real estate owned-proceeding, we would
also become the subject to the various risks associated with direct ownership of real estate, including environmental
liabilities. Even if we are successful in foreclosing on a loan, the liquidation proceeds upon sale of the underlying real
estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us. Furthermore, any costs or delays
involved in the foreclosure of the loan or a liquidation of the underlying property will further reduce the net proceeds and,
thus, increase the loss.
Risks Related to Debt Financing
We may encounter adverse changes in the credit markets.
Any adverse changes in the global credit markets could make it more difficult for us to obtain favorable financing,
which would impact our ability to generate attractive investment returns for our stockholders. If we are unable to obtain
favorable financing terms, we may not be able to adequately leverage our portfolio, may face increased financing expenses
or may face increased restrictions on our investment activities, any of which would negatively impact our performance.
We incur mortgage indebtedness and other borrowings, which increase our business risks and could hinder our ability
to make distributions and could decrease the value of your investment.
We have financed the acquisition of investment properties by borrowing and we may continue to do so in substantial
part, which increases our exposure to loss. Under our charter, we have a limitation that precludes us from borrowing in
excess of 300% of our net assets, which approximates borrowing 75% of the cost of our investments (unless a majority of
our independent directors approves any borrowing in excess of the limit and we disclose the justification for doing so to
our stockholders in our next quarterly report), but such restriction does not restrict the amount of indebtedness we may
incur with respect to any single investment. Our target leverage ratio is in the range of 50% to 65%. Our leverage ratio is
measured by dividing (i) consolidated property-level and entity-level debt, net of cash and loan-related restricted cash (but
excluding leverage on our securities portfolio, including listed REITs), by (ii) the asset value of real estate investments
(measured using the greater of fair value and purchase price). We may exceed our target leverage ratio, particularly during
a market downturn or in connection with a large acquisition. The use of leverage involves a high degree of financial risk
and will increase the exposure of the investments to adverse economic factors such as rising interest rates, downturns in the
economy or deteriorations in the condition of the investments. Principal and interest payments on indebtedness (including
mortgages having
