Thursday, October 8, 2009

Alliances Help Lenders Manage Foreclosed Commercial Properties

Alliances Help Lenders Manage Foreclosed Commercial Properties
By CONNIE LEWIS - 10/5/2009
San Diego Business Journal Staff

It’s widely speculated that a tidal wave of delinquent commercial property loans and foreclosures will give the economy another wallop.

Increased vacancy rates, falling rents and the absence of readily available credit have impaired many borrowers from staying current on their loans.

Meanwhile, some Southern California commercial real estate firms have geared up to capture new business by helping lenders tackle foreclosure portfolios.

Voit Real Estate Services of Newport Beach, which has offices in San Diego, offers brokerage, construction management, development, property management, financial reporting and entitlement services.

It also provides asset management services and plans to joint venture with certain banks in the ownership and disposition of foreclosed commercial properties, says John Strockis, executive managing director of asset services.

Hold Till Turnaround

Anticipating that banks which have foreclosed on Class A properties will not want to sell them in a distressed market, Voit will offer investment equity to cover tenant improvements, leasing commissions and capital expenditures on properties for three to five years, Strockis explains.

The way the joint venture will work is the bank or lender would contribute the market value of the real estate into a limited liability corporation. Voit’s portion of the investment would be the cash required to manage and operate the property for three to five years. Voit would collect asset management fees and share in the profit when a property is sold, he says.

“Voit is not an opportunistic buyer,” he stressed. “Our returns would be modest.

“We’re privately held and debt-free. We’ve developed over 25 million square feet of property and owned another 10 million square feet since 1971.”

Strockis says Voit began to refocus its asset management division earlier this year and is targeting 40 lending institutions with which to joint venture on Class A assets.

Lenders would be interested, he says, because many lack the staff or expertise to increase loan recovery values without help. Voit is reviewing five separate joint ventures, but hasn’t closed on any.

“It’s really early in the cycle,” he said. “The start of commercial foreclosures won’t really hit for another six months and will continue for the next couple years.”

Voit’s Asset Services division says it recently negotiated the sale of three distressed assets in Southern California for amounts ranging between $4 million and $8 million.

According to analysts, the nation’s commercial real estate market is underpinned by $3.5 trillion of debt.

Seeking Resolution

Stath Karras, executive managing director of the San Diego office of Cushman & Wakefield, says that it set up a “resolution group” a year and a half ago to provide banks, financial institutions and special servicers with such real estate services as management, leasing, evaluation and disposition for distressed real estate.

“A lot of folks think it’s simply an issue of trying to sell a property,” Karras said. “But first you have to develop a plan for the property and then execute the plan on behalf of the financial institution.”

He said Cushman & Wakefield’s “post-foreclosure” services would include management, leasing, construction management and “disposition when the time is right.”

Its fees are based on pricing for various services.

“A lot of institutions need to get products stabilized, meaning when they take a property into foreclosure they want to make sure (a manager) goes to talk to the tenants, collect rents and provide basic services to a building, and deal with deferred maintenance issues so that current tenants stay and others lease,” Karras said.

Most of the demand has been for property management services, and he says he expects demand for that and its other services to increase.

There’s currently no good measure on how many of the county’s commercial property loans are in trouble or in default, he notes.

“When we started, the business was not there,” Karras said. “We started in anticipation of it occurring.”