Disposing of distressed assets involves more than just offering notes or REO for sale-much more-as panelists pointed out recently at the Grubb & Ellis annual Deal-Making Summit, held in San Diego. The event brought together some 1,000 attendees for a host of lively panel discussions and other events.
The distressed assets panel (moderated by the author) focused on how service providers like Grubb & Ellis can best serve the interests of banks and other clients in disposing of distressed assets. Conrad Andersen, executive vice president and managing director of financial services asset management at Grubb, explained that those issues fall broadly into two categories: concerns regarding pre-foreclosure dispositions including note sales, and concerns regarding post-foreclosure REO sales.
One of the key decisions that banks and others holding distressed assets face is whether to dispose of an asset as-is or on an as-stabilized basis. Since stabilizing the property is likely to take some time, Andersen pointed out, service providers who recommend that approach need to be sure that it can be accomplished in a reasonable period of time and that the lender will receive an appropriate return.
Panelist Paul Nakae, an EVP and CRE workout manager for Bank of the West, said that his bank is willing to wait for an as-stabilized disposition if it can maximize recovery that way. "We try to look at the timing and the reward of the cost of managing it through the stabilization process," he said.
On the general question of whether to dispose of assets via note sales or REO deals, Grubb senior vice president and senior note sale adviser Craig Sherman observed that many banks favor note sales these days for a variety of reasons. Note sales keep them out of the chain of title on some challenging assets; provide a quick solution compared with foreclosure proceedings; and, in today's market, produce returns that are relatively close to REO values.
Whether or not note sales will continue to deliver those returns remains to be seen, Sherman said: "Right now, there's a pricing bubble in note sales."
Attorney Karol Denniston, a shareholder and managing partner of Brownstein Hyatt Farber Schreck's Los Angeles office, said that pricing distressed assets in general is the result of "too much capital chasing too few quality deals." Denniston, a member of her firm's Corporate & Business Department and Bankruptcy & Restructuring Group, also offered some advice on placing a real estate asset into receivership.
"You have to be sure that the receivership's order is comprehensive and covers what the objectives are," Denniston said. She pointed out that in bankruptcy cases, the receivership should be in place before the bankruptcy order is filed, "which reduces the cost and makes the property more manageable because the lender is no longer in possession."
On the question of what constitutes a good disposition, Denniston said that it's a deal that meets the objectives and concerns of all parties. By contrast, she said, "The worst deal is one that results in litigation after the fact." Andersen pointed out that while you could "knock the ball out of the ballpark on a disposition, if you're not reporting back to the client on a regular basis, you're not going to get a good mark. It's really about communicating real-time information on an ongoing basis. If you do that, and you execute as you should, you'll have a happy client."
GlobeSt.com News Hub is your link to relevant real estate and business stories from other local, regional and national publications.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
