SAN DIEGO-Many economic factors are making it harder to get a loan, and while the economy is seeing some recovery, “We’ve got a long way to go,” with many problems still plaguing the market, said Judy Hoffman, COO of Trigild, who moderated a panel on distressed debt at a recent CREW San Diego lunchtime program. Hoffman said the CMBS loan default rate is at 10%, the bank-loan default rate is at 3.5%, $1.5 trillion in commercial loans will mature between 2012 and 2017, and property values are down 35% from the height of the market, factors that slow recovery appreciably.
Panelist Debra Shannon, a SVP with California Bank & Trust, said there are several types of sellers in the market, and “it is important to understand what is motivating the seller so you can make the best deal with them.” However, she added that FDIC rules can stymie the process, since the agency would rather see problem debts worked out than sold.
Valuing assets in the current volatile market is also difficult, according to Mo Vakill, a partner with Deloitte & Touche. Defining value can be problematic because observable market transactions used in valuations are often lesser amounts than what a seller is hoping to gain. Also, the FDIC enters into unique arrangements with each bank that is purchasing assets, depending in part upon the risk involved.
Kelley McLaren, managing director of receiver services at Trigild, said that some lenders choose to put distressed properties into receivership as an alternative to foreclosure, finding that this strategy can actually improve and maximize value. Selling a property through receivership also has multiple advantages, and in some cases this is a good strategy for getting the highest recovery. As GlobeSt.com previously reported, the role of receivers is becoming more specialized as the economy shifts.
The dramatic changes in the real estate market have caused many within the profession to change their mindset, added Marjorie Burchett, a partner with the law firm of McKenna Long & Aldridge. “Often, basic documentation, such as leases cannot be found, and title companies and others involved in the buy/sell process have gained significant expertise just in the past three years by dealing with new challenges. She also said she sees an opportunity for those who have lost their jobs in recent years, since buyers are hiring back individuals familiar with properties, realizing the value of their institutional knowledge.
Romy Loseke, general counsel to Westcore Properties, spoke of the challenges of the current market condition, sharing that she has had experiences where the firm has had as little as 24 hours to put bids on distressed properties and noting that her company is “incredibly selective” when buying notes and properties.
Vakilli added that instead of looking at an entire portfolio as a whole, dealing with current market challenges by “taking a step back from the madness and looking at each property strategically” is a good approach.
For more information on distressed asset investments, click here.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
