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| Michael Bull |
ATLANTA, GA (March 11, 2013) – Loan delinquencies are on the
decline, but there are still ample opportunities for investors to purchase
distressed commercial properties. Before forking over money for those troubled
assets, however, investors should make sure they have suitable real estate
experience.
Those were some of
the observations and tips provided by a panel of experts in distressed real
estate on the most recent episode of the “Commercial Real Estate Show” radio
program, hosted by Michael Bull of Bull Realty.
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| Tom Fink |
The show provided an enlightening look at the issues
surrounding the acquisition of troubled commercial properties. Topics included
CMBS delinquency rates, selling notes and due diligence.
The delinquency rate
for U.S. commercial real estate loans in commercial mortgage-backed securities
(CMBS) fell to 9.42 percent in February, its lowest level in a year, according
to Tom Fink, a senior vice president with the analytics firm Trepp LLC.
“It’s come down significantly, and we expect to see that number continue to
decline,” he added.
 |
| Ann Hambly |
Investors who
acquire those commercial properties still experiencing distress should have
plenty of real estate experience, Fink cautioned.
“If you’re looking
at a distressed property, you’re looking at something that from a real estate
point of view is broken, and so you have to be able to say, ‘I will address the
real estate issues relating to this property,’” Fink said. “If you’re not a
real estate person, and you want to buy distressed real estate, I’d stick to
one of the big REITs that’s got a distressed real estate program. I would not
try and do it on your own if you don’t understand real estate.”
Ann Hambly,
CEO of 1st Service Solutions, noted that an owner of a distressed CMBS-financed
property can simultaneously list its troubled asset for sale while negotiating
a discounted pay-off with the servicer. However, in these instances, the
servicer “is not agreeing to just accept whatever the [sales] price is [as the
pay off],” she added. “So these are two parallel paths that have to be
obviously very, very coordinated.”
 |
| Duncan Miller |
Lenders selling distressed properties typically want to sell
the assets as is and make no reps and warranties, noted Duncan Miller, a
partner with Morris, Manning & Martin. However, thorough due diligence on
the part of a prospective buyer can make some lenders consider otherwise.
“Knowledge is
everything, so if you go to the lenders and ask them to make specific
representations and warranties and give them specific reasons why you need
[them], then they’ll listen because it’s a good request,” Miller said.
Too often, potential
buyers simply look at the differences between the loan values and the asking
prices of distressed assets before concluding they’re getting good deals,
according to Duncan.
“If the loan was originally $5 million, and they’re picking
it up for $2.5 million, they say, ‘What can go wrong?’” Duncan said. “From my
perspective, that isn’t the right way to look at it … Buy it like you’re buying
regular commercial real estate, and do all the due diligence you can.”
“If the loan’s $36
million, and you’re getting it for $6 million, that doesn’t necessarily mean
it’s a good price,” Bull added.
The entire episode
on investing in distressed and value-add properties is available for download
at www.CREshow.com. The next “Commercial Real
Estate Show” will be available March 14 and will examine the U.S. land and
development market.
For More Information, Contact
Stephen Ursery
The Wilbert Group
404.965.5026
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