$900,000 or $800,000,” says Fogel. “The banks
are realizing the seller is the one qualified to
get the most money for the property, and they
are deciding on a case-by-case basis whether
they will forgive the borrower the difference.”
In Orange County a lot of developments
are broken but not busted. Office buildings are
functioning with tenants, but they are not providing enough income to pay expenses, mainly
mortgage debt, and finding a lender to do a
refinancing is near impossible. The banks don’t
want to take the property back; instead, they
put it into receivership.
Think of receivership as a stage just short of
the bank taking title.
“When a property is put into receivership,
brokers get hired not only to take over the leasing but also to sell the asset out of receivership,” Mullin explains. “The lenders, whether
they be CMBS, life insurers, credit unions, or
banks, don’t want to take title and have to deal
with all the intended liability that comes with
it.”
Borrower Strategies
In some markets, the borrowers, not the lenders, are taking the initiative to move real estate
to a new ownership position.
The Boise, Idaho, commercial real estate
market has been very hard hit by the recession. “I’ve been doing this for 32 years and
this is the worst downturn I’ve seen for such
a lengthy period of time,” says Gary Buentgen,
SIOR, CCIM, a principal in Boise-based
Intermountain Commercial Real Estate.
Even with the property market in such turmoil, Buentgen is concluding two sales, and
he was able to find a buyer for both buildings
because he convinced the owners to finance the
deals. The buyers were end-users.
“It is an easy sell if the owners don’t have
debt against their properties,” Buentgen
explains. “As primary lenders, they are in the
driver’s seat and they get to charge more for the
loan than the buyer would have received from a
bank.”
Buentgen adds, “If we know it is a strong
buyer, we can get personal guarantees. As long
as there is a traditional down payment of 20
percent or more, the seller feels comfortable
that the buyer has enough skin in the game to
meet the obligations of the debt.”
That borrower ploy is a bit different from the
ones Tom Hill, SIOR, CCIM, of Tom Hill Realty
& Investment in Waterbury, Connecticut, has
been experiencing lately.
One of Hill’s clients was underwater on a
five-acre lumberyard with a 20,000-square-
foot building on it. The lawyer for the client
asked Hill to accompany them to court, where
they were going to ask for an extension.
“They were asking the court to hold off
foreclosure for a year and give me time to sell
property,” Hill explains.
It’s a good strategy, says Hill. “I do the
owner a favor, preserve the listing, and, if there
is no foreclosure, I still have an opportunity to
sell the property.”
These requests come in fairly often, Hill
notes. “It’s happening more and more. Some
banks know they will never get paid, so they
are starting foreclosures or turning the proper-
ties over to receivers. Other banks are extend-
ing the loans. And cities do not want to take
over the properties even if taxes aren’t paid.
They don’t want to be responsible for the oper-
ations of the properties.”
