Sperry Van Ness has formed an Asset Recovery Team, a group of its advisors who operate nationwide as a team specializing in the various areas of distressed properties. The team’s members include everyone from receivers to brokers who specialize in monetizing distressed or troubled real estate assets. The group has a number of goals. First among them is finding situations where it can assist in providing solutions for the owner or the lender. Second, the group is identifying companies who are looking to buy properties out of foreclosure or pre-foreclosure situations. Thirdly, since SVN is a company of smaller companies, the SVNART team was formed to create a best practices knowledge bank for all members.
The SVN Asset Recovery Team met in Washington, D.C., on February 12 for a day-long session to share ideas and experiences and meet the alliance team members. Shopping Center Business was invited to attend to see how one company is evolving to the changing industry.
Many of Sperry Van Ness’s advisors are actively engaged in the disposition or renegotiation of many distressed commercial real estate properties nationwide. In fact, SVN expected between 30 and 40 advisors to attend the Asset Recover Team originally. The meeting in Washington had about 120 participants, and those were just the advisors who could make the meeting.
SVN identified potential team members by looking at their experience. The company created an executive team to lead the Asset Recovery Team. Realizing that the company had advisors who knew how to work with banks, who knew how to work with the FDIC and who had acted as receivers, the company then formalized its structure and made the entire company aware of the resources.
“The reason that we’re structured the way we are is so an advisor in Texas can call his team leader and request a specific resource. That team leader knows exactly who to go to on the Asset Recovery Team, or to an alliance member, to provide the resource,” says Jerry Anderson, executive managing director of Sperry Van Ness Florida, and a leader of the Asset Recovery Team. SVN has also not restricted its advisors by creating managed accounts. Any advisor is free to call any account and SVNART is coordinating the efforts to avoid overwhelming prospects.
The Asset Recovery Team has set up a national hotline for real estate owners to contact the team, as well as for buyers who may be interested in some distressed assets. Other than owners, SVN’s national hotline is reporting most calls it receives about distressed assets are from low bidding buyers who are looking for a good deal.
“They want us to call them on an asset when it gets to 30 cents on the dollar,” says Anderson. “They are sitting there with $200 million to spend, but they’re not going to start until prices hit 30 cents on the dollar, and that’s on the loan value.”
SVN’s hope is that prices don’t get that low. On behalf of its existing clients, its brokers often obtain permission from borrowers to speak directly to the lender. Since many owners are not versed in real estate workouts, SVN has been able to negotiate some solutions and negotiations on defaulted loans. As well, after a property has entered receivership (the court has ordered the property into the hands of a receiver after the developer has defaulted), SVN brokers are actively seeking management duties to assist in stabilizing the assets. SVN advisors in many markets are also working with receivers to negotiate settlements on behalf of the owner, including some resolution on the loan when the property is ultimately sold.
Tom Hoban, an SVN broker in the Seattle market, has been calling on regional banks and to pre-qualify receivers so that he can gain management contracts for troubled properties in his market.
“Having a solution in place for a lender or a receiver on that immediate need of management is key to getting the [investment sales] brokerage business on the back end of the deal,” he says.
Beyond dealing with lenders and receivers, SVN has also seen another entity that it must deal with in some cases — the Federal Deposit Insurance Corporation (FDIC), the government entity that takes over failed banks. The FDIC took over nine banks nationwide in January 2009. SVN predicts this will be an escalating number throughout 2009.
Interestingly enough, several SVN brokers who specialized in distressed assets in the recession of the early 1990s are now returning to that business. Jim Taylor, an SVN broker in San Diego, specialized in bankruptcy work in the early 1990s. By the late 1990s, he says, the business had dried up. Now, it’s back again.
“We have five people on our team who are all special asset workout people,” he says. “Two years ago, we started calling on every single notice of trustee sale and notice of default. We contacted every lender and started making inroads with them. We’re also actively involved with the California Receivers Forum.”
One way Taylor is positioning his group is to help lenders and receivers work with owners to prevent full foreclosure.
“Lenders should really not take title to a property,” says Taylor. “There is too much liability for them. We’ve been reaching out to the lenders; even some of them don’t realize the problems of ownership — the insurance, the angry associations, the management — it makes them a target. It is a good deal for the owner and lender if it stipulates to the appointment of the receiver. As brokers, if we are close to the receivers working in our community, that puts us in a good position. A lot of times, we recommend the receiver to the lender. Later, we may end up selling the property out of receivership to raise capital to pay the loan. It buys everyone more time.”
Another SVN group, Boston-based Great Cove Advisors, specializes in sale-leasebacks of corporate real estate assets. With corporations pressed to find capital, they are increasingly turning to their real estate to find money.
“We have done deals where the equity infusion a company gets from selling its real estate and leases it back is the difference that saved the company,” says Bob Miller, a principal at SVN Great Cove. “The only difficulty in our market is the lack of credit available. The buyer has to be credit worthy and have equity. A number of regional banks are also still making loans.”
The Asset Recovery Team communicates through a software tool, which is also accessible by the company’s clients. For example, if a number of SVN advisors in Ohio, California and Florida are working on properties on behalf of a bank, all parties are able to log into the account and see what is transpiring on any of the properties.
Sperry Van Ness is attacking the end of the market where smaller deals may lie. Its agents are generally concerned with properties valued at less than $50 million.
“The difference for us is, with these smaller properties, we realize that the real estate business is local,” says Anderson. “It is also a relationship business. When we look at the strength of our business on the local and regional level around the country, we want to make sure that our advisors have a resource to go to for any problem they encounter with troubled assets. By reviewing the talents, expertise and historical track record of our advisors, we are able to provide that resource which ultimately provides a solution for those involved with a troubled asset.”