To start
“Many
loans must
be bought
seen a resurgence and office-space transactions always
exist regardless of the status of the market.
Many are taking note of these market opportunities.
Based on year-end 2011 data for sales in office, industrial,
retail and multifamily, distressed property sales totaled
$21 billion this past year, up from $20.6 billion in 2010,
according to CoStar Group data. The research company
projected a continued elevation in distressed transaction
activity this year.
out because
banks don’t
want to
be in the
business of
owning real
estate and
are looking
Look for opportunity
Many investors are looking to take advantage
of the discounts available in today’s distressed
markets, and mortgage brokers must be aware
of the individual circumstances of each deal.
Whether it is a note or a distressed property
with debt on it, it could be underwater for cash-flow reasons. There also could be equity partners involved in the transaction. For example,
a group of equity partners may take an opportunity to buy a vacant warehouse that was not
generating any income from a bank that had
foreclosed on the property. The bank is willing
to sell the property at an advantageous price,
and the partners are interested in converting
the warehouse into a data center.
There are numerous similar opportunities
for entrepreneurs to buy distressed properties and convert them into a business that
can generate cash flow. In the preced-ing example, the warehouse is a perfect
space for a data center — and data centers represent a real estate sector that is
growing rapidly.
As for other sectors to watch, apartments have done well, hotels have
to divest
these assets,
Find the right lender
With these points in mind, commercial mortgage brokers can proceed to the next step: finding the right
lender. The ability of the commercial mortgage broker to
match the deal with the right lender is crucial, and there
are a couple points that must be kept in mind to make
the correct choice.
First, note the size of the deal and the borrower’s
quality — both are important factors in a lender’s decision. Remember, a lot of capital is chasing larger deals
because it takes as much work to do a $5 million deal
as it does to close a $50 million deal. That is why you
may find a lot of the so-called “deep pockets” unresponsive to smaller loans.
Second, some brokers may be tempted to contact every lender in their database and hope two or three of
them will issue term sheets — and one will actually get
a deal done. The more sensible approach is to focus
clearly on the needs of the lender and only reach out
to those particular lenders who specialize in that category. With the availability of information on the Internet today, it’s no secret who’s doing what — including
the bridge lenders that are lending into certain spaces
and the ones that aren’t.
even at a
significant
discount.”
Determine value
For the deal to proceed, you must determine the true
value of the asset and how much a lender likely is willing to provide. To start, you must remove the bias various parties may bring to the transaction. A borrower
who previously owned a property will have a bias of
value — just as a homeowner would. Go strictly with
today’s market value.
There are two ways of estimating how much to get
from a lender:
1. loan-to-value: Typically based on an updated
continued on page 36 »
Jeffrey Wolfer is president and CEO of Silver Arch Capital
Partners, a nationwide bridge lender. He has been a driving
force in the private lending industry for more than two
decades. Wolfer grew one of the leading players in the
business from $40 million in annual closed loans to more
than $500 million in 2007, fueled in part by a $300 million
credit facility from Fortis Bank. Reach Wolfer at (201) 254-
2555 or visit www.silverarchcp.com.
