Among the services the new unit will provide asset tracking and reporting; due diligence; deed and transfer documentation preparation and recording; and disposition management. Shimano tells GlobeSt.com that many of Madison's clients found themselves unprepared to deal with the complexities of REO properties, which is what led to the establishment of the new unit.
"Investors didn't realize how deep and technical these situations can get," he says. The new Madison unit will not only help clients purchase REO properties in bulk, but also formulate an exit strategy. Currently, the division is working "a few thousand" assets nationwide, Shimano says.
According to a midyear report from Real Capital Analytics, the value of significant commercial properties in default, foreclosure or bankruptcy total nearly $115 billion, or more than 6,000 properties, as of June.
Another recently launched division of Madison, Real Diligence LLC, helps its clients avoid a foreclosure by negotiating a loan workout with lenders. "Once a property goes into REO, its value immediately drops," David I. Tesler, CEO of Real Diligence, tells GlobeSt.com. That affiliate started up six weeks ago, and is currently working on nine loans.
The main problem, Tesler says, is that both lenders and borrowers have no idea of an asset's true worth when it goes into distress. Consequently, Real Diligence undertakes a thorough review of the property, including its physical condition and tenant roster as well as the vacancy and rental rates of buildings within a 20-mile radius. By doing so, it can present to the lender a fair analysis of the property's value. "You have to be fair," Tesler says, "otherwise no one wins. The lender will take a hit, but less of one than it would if it forecloses."
Tesler says that lenders are open to negotiation. However, if a loan is reduced, most lenders will want a payoff. In that case, Real Diligence can help a borrower find funding. Other options include extending the maturity of a loan, instituting a moratorium on debt service or giving the property a capital infusion so it can attract tenants.
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