The Real Deal Miami

Troubled assets spell big biz for specialists

When it comes to maintaining troubled assets, vulture
investors are circling South Florida properties.

And there are a number opportunities out there. The area is currently home to $12.4 billion in troubled commercial real estate assets, according to data analysis firm Real Capital Analytics, and more lenders are foreclosing with the goal of reselling the properties to willing buyers.

That spells big business for distressed asset and receivership
specialists, workout pros and other commercial real estate experts who can navigate the troubled waters of these property types.

“The Chinese word for crisis is opportunity and the future for
seasoned commercial brokers with workout experience has never been brighter,” said Miami real estate consultant Jack Studnicky, vice president at International Sales Group. “Lenders will have to sort out the real and reputable from the promoters who launched their firms in the last two years.”

Studnicky said brokers who see the long term value in protecting
assets, banks and their own reputations will emerge as winners in the current cycle. He warned against “fire sale” pricing that ultimately harms the entire market.

Warren Weiser, principal of Continental Real Estate Companies, agreed.

So far the market isn’t reproducing the fire sales that characterized
the savings and loan crisis of the 1980s and 1990s. That, he said, is
because there is more than enough capital chasing distressed deals to encourage some level of bidding to maintain fair market value rates.

“We don’t necessarily need to push real estate out the door to anyone willing to buy it,” Weiser said. “Rather, we need to understand the real value and see if we can create more value. If it’s right to sell it today, we’ll sell it. But if it will appreciate over time, we’ll hold on to it.”

Continental has been managing receiverships and distressed assets for 20 years, taking on 29 Florida projects in the past year alone, including Parc Central East in Aventura. Studnicky has, too.

“The proper value is derived by analyzing today’s market value as well as replacement cost and projected value,” Studnicky said. “Taking the opinion of local brokers on property value will generally lead to fire sale pricing. Unfortunately, I’ve seen lenders leave millions on the table for lack of the right advice.”

Distressed properties abound in South Florida’s commercial real estate market. If 2009 was a year of workouts between gun-shy lenders and defaulted borrowers, then 2010 could very well be remembered as a record year for commercial foreclosures. The question is, how long will the opportunities last?

“This opportunity is going to be here throughout 2010 and 2011 but I think the market will slowly get better over time,” Weiser said. “I don’t think anyone can give a real accurate projection of when it’s going to change. How robust our recovery is going to be — and when that happens — is largely tied to the general economy.”