Lenders who foreclose on commercial real estate these days face a series of decisions that, arguably, are tougher than those same choices might have been right after the capital markets crashed. At the start of the recession, when real estate was heading south, those who foreclosed might well have wanted to sell the foreclosed REO and move on. There really was no telling how long the markets would take to recover enough for the lender to add value and sell the asset for a higher price.

Nowadays, however, with top markets recovering and signs of improvement even in some secondary markets, deciding whether to sell or hold is a tougher call. Obviously, the choice to hold on and add value is a question mainly for lenders when they foreclose. That's because the other primary group that is foreclosing, those who buy notes with the express intent of gaining title to the property, typically already have a plan for adding value to the asset when they buy the note.

Unlike the note-buyers, the banks, special servicers, financial institutions and insurance companies tend to foreclose upon a commercial property as an unintended consequence of a borrower default, according to Tustin, CA-based John Strockis, president of Mar West Real Estate. "Each of these firms has unique strategies, capital constraints and staffing that dictates whether it makes sense to hold or dump and sell," he says. "Oft en the property itself-smaller assets like land in a tertiary market-will be an automatic sell." Alternatively, he says, class A or well-located class B assets in a primary or secondary market with hopes of leasing will be better candidates to hold and add value. Strockis points out that some lenders that are value-add oriented include Wells Fargo, Bank of the West and LNR, whereas others that might be more likely to sell as soon as possible include Bank of America, Union Bank, Key Bank and US Bank.