Commercial Investment Real Estate March/April 2013 - Page 31

U.S. Cumulative Distress, January 2013 Retail Offi ce $120 Billions $80 Resolved Restructured REO Troubled $100 $80 Billions Resolved Restructured REO Troubled $70 $60 $50 $60 $40 $30 $40 $20 $20 $10 $0 '08 $0 '09 '10 '11 '12 Industrial $30 '10 '11 '12 '10 '11 '12 Billions $90 $80 Resolved Restructured REO Troubled $20 '09 Multifamily Billions $25 '08 Resolved Restructured REO Troubled $70 $60 $50 $15 $40 $30 $10 $20 $5 $10 $0 $0 '08 '09 '10 '11 '12 '08 '09 Source: Real Capital Analytics T e previous owner had $60 million invested in the asset, but defaulted on the property’s $42.2 million loan. Miranda’s client purchased the note for the amount of the remaining balance, $19 million, and obtained a deed in lieu of foreclosure to take possession of the property. At $19 million, the new owner’s basis was 68 percent below the previous owner’s. “T is reset in basis allowed us to meet the market and begin driving new leasing activity, improving net operat- ing income and by derivation, asset value,” Miranda says. “Instead of renting space out for $28 psf triple net, we’ll rent at $12 psf triple net and escalate from there to achieve our investment objectives. It’s a very compelling strategy.” Another skill set with lucrative potential for CCIMs is to work with the court as a receiver, managing properties while borrow- ers and lenders work out their dif erences and perhaps marketing notes for sale as part of lender workouts. Mark B. Weiss, CCIM, president of Mark B. Weiss Real Estate in Chicago, has served as a court-appointed receiver and sales broker of and on since he started his f rm in 1988. As in acquisitions, the ability to analyze proposals quickly is an asset in bank workouts, Weiss has found. T e f nancial resources of a borrower who has fallen into default will typically deteriorate with time, so lenders who negotiate a deal early in the process stand to recover more on the debt than those that hold out for a larger amount, he explains. “T e smart strategy is to absorb some of the loss, and the f rst loss is of en the best loss,” Weiss says. With their analytical skills and local market knowledge, CCIMs are in a good position to leverage distressed assets into prof table deals. “T ere are opportunities out there,” Malensky says. “You just have to be at the right spot at the right time, and know how to analyze the prof tability of a project quickly.” Matt Hudgins is a business writer based in Austin, Texas. March | April | 2013 29