[IMGCAP(2)]The majority of the firm's business involves failed or fractured condo conversion projects. And, it typically comes with complicated issues since there are homeowners to deal with as well as vacant units, along with other factors such as lawsuits that may be going on between the homeowners association and the developer, the lenders' piece and maintenance and management issues, Gillingwater says.

Meanwhile, the rental properties that Montecito Asset Recovery Services works with tend to be those whose owners weren't able to pay their loans, thus ending up in bankruptcy or foreclosure. For the most part, their clients tend to be banks or trustees, Gillingwater explains, since owners who find themselves in distress generally don't have the capacity to tap into third-party help.

"What typically happens is a receiver or bank calls and asks us to look at a property to see what we can do for them," Gillingwater says. "Banks are not in the business of owning and operating multifamily projects and are eager to find alternatives that will enable them to manage a project efficiently. We'll tell them where it's positioned, do a quick market study and physical and financial analysis on it--'here's what we see with the property, here's what we see can happen in the rental market and in the future, here's what we see with respect to sales, if it's possible to sell any at all.'"

Gillingwater says the main issue is "how can you take this piece of property that has been devalued by 50% and bring it back up again where everyone is going to make out."

The first thing that the firm usually does is try to stabilize the community, which involves renting the vacant units so there's income for property maintenance. From there, the property holder can wait out the cycle or make physical improvements to the property to make it more appealing to buyers. The exact plan, Gillingwater relates, depends on the asset.

"The rental market is doing very well," Gillingwater says. "As the market stabilizes, the values will come back. They won't return overnight, but it will come back to you quicker if you've taken care of the property so there are no physical problems. You've got to tie a bow around it, maintain it properly and keep it in the best physical shape you can so that when the market comes back again, you've got a property that you can sell."

Meanwhile, MCZ Development Corp. of Chicago kicked off a new division, MCZ Affinity. Similar to Montecito Asset Recovery Services, Affinity provides solutions to disposing and/or repositioning property. However, Michael Lerner, MCZ Development's founder and president, says the firm usually works with property owners, though it has been "approached" by a few banks as well.

Most of MCZ Affinity's properties are buildings that were initially meant as condos and have unsold units. The firm rents and manages the unsold units while at the same time keeping them on the market for sale.

"We created this division to manage and reposition existing residential projects. If you're a condo developer, you may not have experience in operating, leasing and providing the day-to-day management of a rental property," Lerner says. "We provided those services anyway, but now we've formed a dedicated unit. For a developer that gives us its project, we'll be a one-stop shop that markets the asset and maximizes sales dollars and rental revenue while dealing with their tenant and sales operations." He adds that the firm not only provides such services to owners of the overall community, but also to owners of individual units.

Overall, Lerner says it's all about managing inventory. "Sometimes an investor will buy a rental unit, sometimes the rental turns over and we try to keep a balance of units in the sales pool empty and available immediately," he explains.

Not surprisingly, much of Montecito's focus has been on the once-hot condo markets in Florida, Arizona, Nevada and California. Likewise, MCZ Affinity is primarily active in Florida and Arizona as well as Chicago.

Gillingwater says he believes the division can operate indefinitely because there's always a need in the market for such services. "But right now," he adds, "there's a huge emphasis on the business because more and more product is going to hit the market over the next year. Loans are being culled, people are in default and they've got huge financial hardships. You saw it in the late 1980s and early 1990s. And although the reasons aren't exactly the same, it all tends to be a financial or oversupply issue."

Yet Lerner maintains that although MCZ Affinity deals with property holders in "precarious situations," the market isn't all doom and gloom. "The market's conditions have changed, but they're not as bad as some in the media portray it," he says. "The market's definitely slowed down and prices are declining, but we're still selling units, the rental market's in very good shape and the operations have been doing very well. Now we're working on the rental management services part of our business, for ourselves as well as third parties. During this transition period while the market slows down, it obviously is benefiting us in terms of providing a better rental product."