Lenders also need to exercise care in foreclosures, observed Lew Freeman, principal of LBF Global. "If you're taking an asset back, you better know what you are getting," Freeman told the audience of 375 at the Hyatt Regency Miami.
Distress will likely be the ongoing wave in commercial real estate, particularly in Miami, one of the nation's largest distress markets with nearly $5 billion in assets tracked by Real Capital Analytics. "If you're going to work in real estate over the next five years, you're probably going to work in distressed assets," said Bob Gorlow, principal of RGMA.
Not surprisingly, multifamily is the leading distress sector in Miami and many other markets throughout Florida due to an overabundance of unsold residential condominium units. Peter Zalewski, principal of CondoVultures LLC, estimates that there are at least 2,300 unsold condos now on the market as the result of Chicago-based Corus Bank's failure.
When Corus closed in mid-September, the FDIC estimated a loss of $1.7 billion. However, Jack McCabe, CEO and managing partner of McCabe Research & Consulting LLC, believes that number will go higher. "I think it's going to be $2 billion to $3 billion when all is said and done," said McCabe, who moderated the distressed assets panel.
Zalewski, who appears in Michael Moore's new film "Capitalism: A Love Story," says $200 per square foot will be the "magic number" for banks to release foreclosed condos to bulk buyers of units. But because of the high volume of such units, he believes prices could fall another 25%, with Gorlow estimating that they could fall to $75 per square foot.
McCabe pointed out that many interested buyers are waiting to see how much lower condo pricing could go before making a move. "The deals that went for $250 to $350 a year ago that were thought to be steals are now loss leaders," he said.
Litigation could drag out the recovery process further, with various lawsuits being filed between condo developers, owners and associations, and the situation could get worse if the government decides to pursue fraud charges, Freeman said. "Every developer needs a criminal defense attorney," he said.
The distressed assets panel also included Frank Mackle, president of Torre Mackle, and Steve Russo, principal of Cynergie Group. This marks the fourth year for RealShare South Florida, hosted by Real Estate Florida magazine and GlobeSt.com.
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