Commercial Investment Real Estate March/April 2013 - Page 30
BOOTS ON THE
GROUND FOR REO
Some real estate professionals are turning their CCIM
analysis training to good use by helping lenders evaluate
and dispose of real estate owned, or REO.
In the San Diego ofﬁ ce of Newmark Grubb Knight
Frank, Bob Teglia, CCIM, associate director, and his
partner Brent Bohlken, a senior managing director, have
completed 25 REO sales for 20 different lenders over
the past year-and-a-half. Teglia says lenders are often
out of state and rely on his local market knowledge and
ﬁ rsthand assessment of the physical condition of the
property to maximize sale proceeds.
As a lender’s representative, Teglia has done everything
from securing a property and coordinating cleanup to
walking the roof and checking for structural damage,
all of which helps him better assess acquisition offers.
“We really incorporate those property management type
services into our brokerage relationship,” he says. “A lot
of the lenders are really struggling through a massive
volume of deals, and they need boots on the ground.”
Teglia has found that selling to business owners who
plan to occupy the space often maximizes value for his
lender clients. “When business owners can acquire their
own real estate, they capture both the investment value
and the value in use for their business.”
Frank Szelest, CCIM, is general manager and
commercial manager of the Re/Max Realty Group in Fort
Myers, Fla., and estimates that he has sold more than
$500 million in REO over his lifetime. He says lenders and
their real estate representatives have several advantages
in selling REO today, including historically low interest rates
that enable investors to pay higher prices. In the 1990s, he
recalls, interest rates were 20 percent or more and limited
sellers’ ability to command higher prices.
Based on his experience in previous cycles, Szelest
believes Florida will take another six to 12 months to work
through the majority of its commercial REO before pricing
increases to a point that will make development cost-effective
again. “In the second half of this year, I’m looking forward to
getting closer to that equilibrium so that commercial builders
can start new construction again,” he says. “There will be
pent-up demand for commercial real estate, too, because no
one has built anything for a few years.”
March | April | 2013
market. Yet savvy investment managers are also discovering opportuni-
ties in smaller communities.
Neyer Properties is a development company in Cincinnati, Ohio,
that is buying up properties for redevelopment. T e company avoids
larger markets where it would be competing with institutional inves-
tors for acquisitions, says Chris Dobrozsi, CCIM, who is vice presi-
dent of real estate development at the f rm. Neyer prefers to work in
smaller markets, where competitive bidding hasn’t driven up prices
and reduced available returns, he says.
Neyer made one of its most recent acquisitions, the 250,000-sf
Centennial I and II of ce buildings in Cincinnati, through Auction.
com, an online venue that requires top bidders to close within 30
days. As a developer with a reputation for closing acquisitions quickly,
Neyer hears regularly from brokers listing banks’ real estate-owned
properties for sale, Dobrozsi says.
In choosing which assets to pursue, the company looks for semi-
vacant properties with enough in-place leasing to cover debt and
operating costs. T at means that any additional leasing or rate
increases the company can put into place will boost cash f ow. “T at’s
the value-add for us,” Dobrozsi says.
In November, Jeremy Malensky, CCIM, president of Dutchman
Realty in O’Fallon, Mo., helped his client FS Investments complete a
30-day due diligence and closing to purchase the 36,500-sf 4 Seasons
Center in that market for approximately $1.3 million. To help the
buyer meet its objectives for the shopping center before the onset
of winter weather, the seller, Reliance Bank, allowed painting and
exterior renovations to begin while the asset was still under contract.
T e speedy turnaround paid of ; within 60 days of the purchase date,
Malensky’s team had negotiated 14,000 sf in additional leases to bring
occupancy up to 75 percent, doubling the property’s cash f ow and
meeting the buyer’s 12-month leasing goal.
“I like to get in there very quickly,” says Malensky, who has repo-
sitioned several distressed properties in the region. “I always go in
and give them unique curb appeal, and I also want to be the most
competitive lease rate in that market area,” he says. “If you’re the best
price and you look the best, it’s hard to lose a tenant.”
T e appeal of distressed assets typically revolves around the
opportunity to reset the basis, or owner’s cost position. A basis
reset enables brokers like Ronnie L. Miranda, CCIM, SIOR, to
help clients acquire and improve properties that the previous own-
ers were unable to cost-ef ectively maintain or repair, due to the
distressed owners’ greater cost in the asset. “It’s not always about
f xing something physical,” says Miranda, who is a senior vice
president for asset management at T ompson National Properties
in Houston. “It’s also about lease rates — Can I sell a gallon of milk
for $1 instead of $3.”
Miranda recently helped a publicly registered, non-traded real
estate investment trust to acquire Constitution Trail, a 198,000-sf,
grocery-anchored shopping center in Normal, Ill., that originally
opened at the beginning of the recession. When rents in the area
declined, the property’s cash f ow couldn’t support its debt.
Commercial Investment Real Estate