Tuesday, April 3, 2012

Banks to Have More Commercial REO Properties on Balance Sheets

 ATLANTA, GA – Expect banks to have more real-estate-owned (REO) assets on their balance sheets in the coming years as they become more aggressive in dealing with troubled loans.

 That was one of the points made during the most recent episode of the “Commercial Real Estate Show,” which provided an in-depth examination of the U.S. banking industry and the distressed real estate market. Topics included bank failures, tips for lenders and borrowers saddled with non-performing assets, short sales, and selling notes and foreclosed properties.

Discussing the likely rise in REO properties, Christopher Marinac (top right photo), a managing principal and director of research for FIG Partners LLC, said, “The marketplace is very positive on banks, and bank stocks have done better the last couple of months, but there still is the mechanical disposition of [troubled] assets, and there’s a lot out there to still be done.”

 The number of bank failures is likely to decline to around 60 in 2012, Marinac added, a figures he attributes in part to the improving health of the industry and also to the FDIC’s reluctance to aggressively close institutions in an election year. Out of the 7,000 banks and savings and loans, about 850 are on the FDIC’s troubled list, he said.

 U.S. banks currently have about $10 trillion in total assets; approximately $300 billion of those assets are REO properties, Marinac estimated. “But remember, that’s just the assets that have been foreclosed,” he said. “If you look at the pipeline of problems that are out there, it’s a bigger number, and there’s the shadow inventory of potential problems out there.”

 Rob Whitmire (middle left photo), a partner with Bull Realty and director of the firm’s Special Assets Services Group, said a lender should react swiftly when a loan first shows signs of trouble. The lender should begin compiling reports on the underlying asset at that time and should “get all the information from the borrower [it] can when [it] still [has] a good relationship” with the borrower, he said.

 Borrowers should be quick to act in the same situation as well. “Delay will not help,” said Richard Gaudet (middle right photo), principal of Glass Ratner, a financial advisory firm.

 It’s also a mistake for distressed borrowers to “get greedy,” Gaudet added. “I often get people that walk in and in the first meeting they say, ‘I just want to do the right thing. Help me get this debt paid off.’ By the third meeting, they’re saying, ‘How much more can I get?’”

As for banks trying to sell foreclosed properties, it’s critical that they map out a process for countering offers from potential buyers, guests noted. “You don’t want to tell the buyer, ‘No, we don’t like you. Go away,’” show host Michael Bul (lower left photo)l, founder and president of Bull Realty, said. “When you don’t counter, that’s kind of what you’re saying.”

 The next “Commercial Real Estate Show” will be available April 5 and will examine when businesses should buy their own office space.


Stephen Ursery
Wilbert News Strategies
Office: (404) 965-5026
Cell: (404) 405-2354