There has been a lot of talk recently over distressed and REO sales, as well as the CMBS delinquency rate during past year or more. I have spoken firsthand with several CMBS servicers and have learned that most of the delinquent notes will get worked out with a blend-and-extend model that has been a successful workout method so far. Using this method, the due date on the note is extended (balloon payment) , the interest rate is reduced, and everyone just keeps on trucking. Sometimes, a capital infusion is required to make the workout more successful, but it’s not always needed. This tells me that a small portion of the CMBS distressed product will actually come to market over the next several years. Now, when it comes to the bank-owned/REO sales being transacted by smaller local banks, my experience has been that they are a little less likely to workout deals for the borrower and may opt to bring the asset to market instead. What I have seen lately, is that, in most cases, the product that comes to market from these REO/bank-owned sales, is your typical bottom-of-the-barrel-type building. Regardless of the product type (office, retail, industrial, etc.) the building is in extremely poor condition and has not been taken care of in the past 6, 12, 18 months. In these cases, regardless of how cheap the price is, you are going to have a tough time finding a buyer that wants to spend the time cleaning up the facility and getting it ready to occupy or lease out. Now, every once in awhile, there is “diamond in the rough” and you’ll find a great deal, but it’s kind of like shopping at Ross Dress-for-Less. You have to spend most of the day looking through all the junk to find the one pair of pants that actually fit, but when you do find them, it was worth the effort because they’re only $18.95! That might actually be the best way to describe this distressed market... there are some good deals out there, but you need to be patient and widen your geographic parameters.
Well, on the lighter side of things, my Labor Day weekend was exciting, and I hope everyone else’s was, too. I visited with some friends and spent some time on the golf course. The golf adventure was not pretty this time around, but that always leaves room for improvement for next week. To all those reading, I thank you for taking the time, and until next time… have fun out there!
Jacob Horsley
NAI Commercial Jacksonville
Industrial Group
