Foong on Finance: Where to Look for Distressed CRE Opportunities

Many investors are seeking to take advantage of the downturn (now supposedly coming to an end) to pounce on distressed multifamily commercial real estate opportunities.

Little wonder that the GreenPearl Events’s Distressed Real Estate Summit held in New York last week far exceeded the organizer’s expectations. The day-long event was attended by over 700 industry professionals.

Word at the conference is that if you expect a fire sale of distressed properties, such as the opportunities created by the RTC in the early-1990s, this is not the time. Banks are not letting go of their distressed assets at bottom-feeder prices or even releasing properties en masse necessarily.

If anything, banks are trying to extend loans as much as possible, and holding on to REOs for better prices down the road. As one commentator suggested, their attitude is, why get 50 cents on the dollar today if you can hold the asset longer and get 80 cents on the dollar next year or later? Furthermore, because many banks are healthier (remember the government’s capital infusion into the banks?), they can afford to wait it out.

Where they hold distressed assets, the government has the same approach. The FDIC has closed many institutions—though nowhere as many as in the late-1980s, early-1990s, noted Michael Sher, managing director, at RSM McGladrey, on one panel. But Sher said that the FDIC has a very structured approach in disposing of the real estate assets of the banks: They do not want to dump the assets at one go and destroy prices.

In response to a question posed by Carolyn Pianin, the panel moderator and senior consultant at Focus Management Group, Sher gave several specific suggestions as to where investors can look for opportunities. The handful of financial advisors helping FDIC sell real estate assets include PNC Midland (acquisition, development and construction CRE loans) and KBW Bank (acquisition, development and construction residential loans).

David M. Frank, CEO of the Merrill Group of Cos. LLC, advised investors to contact and build relationships with asset advisory firms, as they are in contact with owners of the properties. He also said that receivers are the first in play even before the servicer handles the asset as REO. “Go to lunch, play golf with them,” he said.

(Keat Foong is Executive Editor of Multi-Housing News. She can be reached at KFoong@multi-housingnews.com)