‘Foong on Finance’ with Keat Foong: One More Reason Why More Distressed Properties Will Become Available

Interest in distressed properties remains high, among homebuyers and investors alike. Some CRE investors may even be holding off on acquisitions at the current ridiculously compressing cap rate environment in the expectation that more distressed properties will be hitting the market down the road.

This month, attorney Stuart Saft, Dewey & LoBoeuf’s Global Real Estate chair and an authority on workouts and distressed assets, pointed out another reason to expect that more assets may be put on sale in the near future.

He says that “Until now many workouts involved merely extending the term of the loans with the hope of the market improving. Lenders were taking this approach to avoid foreclosing or taking a deed in lieu, which would necessitate writing off the loan and increasing regulatory capital.”  

Recently, however, says Saft, there has been pressure on regulators to require lenders to recognize that many loans are in excess of the value of the property, and as a result, need to increase their loan loss reserves. If regulators do indeed move ahead with such requirements, more properties will be liquidated by banks as lenders will be less incentivized to merely extend the terms of the loan, he suggested.  

Saft was speaking at the IMN Banker’s Forum on distressed properties and real estate loan workouts.