Insights from TRD: $6B in note sales in 2010

By Adam Pincus | January 10, 2011 11:49AM

There were more than $6 billion in note sales in New York City last year, much of it in the form of distressed development sites, investment broker Robert Knakal, chairman of Massey Knakal Realty Services said, based on estimates of his firm’s activity and market research.

“Note sale activity was probably on the order of $6 billion to $7 billion,” in 2010, Knakal said, in an interview for Insights from The Real Deal. (See video above.) He estimated banks, developers and investors lost a total of about $5 billion to $6 billion because of the distressed sales.

Because note sales are private transactions that are not required to be recorded publicly, in contrast to property sales, there is no government or independent database that tracks them.

Total commercial property sales in Manhattan for 2010 was $15.3 billion, according to Eastern Consolidated, up 164 percent from 2009, when it was $5.8 billion.

Several brokers interviewed said they believed the number of note sales grew over 2010.

J.D. Parker, vice president and regional manager for investment sales firm Marcus & Millichap, which focuses on sales below $50 million, said his office’s volume of distressed mortgage transactions grew from just a few in the fourth quarter of 2009 to more than 10 in 2010. His office’s advisory work quadrupled, to reviewing about $200 million in notes in the last quarter compared with about $50 million in the same period in 2009.

“Banks are finally coming to grips with taking the loss,” he said, and more are willing to sell their notes.

Data from Real Capital Analytics indicated there were more note sales in 2010 compared with 2009, based on the number of first mortgage sales that resulted in property sales. But the research company cautioned the numbers were not complete because of the private nature of note sales.

There were 12 such property transactions worth more than $908 million combined in 2010 that Real Capital tracked, compared with one sale in 2009 valued at $35 million.

Some of the 2010 sales included CIM Group paying $305 million for the former Drake Hotel site on Park Avenue and 56th Street, and Savanna Partners acquiring 386 Park Avenue South for $42.3 million.