Investors in commercial real estate may find it’s easier to negotiate with the people restructuring loans than the borrowers having trouble paying them.
The opportunity in West Palm Beach and other South Florida markets comes from difficulties in the commercial-mortgage-backed securities (CMBS) market, says Ed Kearney, managing director of Kearney Commercial Realty/Sperry Van Ness. The bonds became popular with investors and bankers seeking to ride the run-up in property values.
“The securities market went south with the economy,” says Ed Kearney of Kearney Commercial Realty. “But not all the loans in each bond have gone bad, only some of them. And that’s where the opportunity lies.”
The troubles – and a potential remedy -- for the CMBS market are spelled out in a recent Wall Street Journal article. It explains that about $14 billion in troubled loans have been restructured, according to Deutsche Bank. The fixes include lowering interest rates and lengthening loan terms.
“Neither of those approaches guarantee success,” says Kearney. “If a property is losing tenants and cannot cover its cash flow, it’s not going to make it.”
The solution may lie with what are called special servicers. According the Journal, these companies represent the owners of securities that have defaulted or could default soon. These players, who often have experience with banking and real estate, try to sort out what can be done to fix the securities. More important, they can help lenders figure out how to shed troubled properties.
One approach: cull the sick properties from the herd, says Kearney of Sperry Van Ness. “That way, the borrowers that have defaulted or are in danger of default do not bring down the whole security.”
It’s a complicated – and temporary – solution, one that can bring buyers an opportunity, Kearney says. After the troubled assets are removed from the loans that made up the security, those properties need to be sold.
“A smart investor working with an experienced broker can identify the true value and opportunity in one of those properties,” Kearney said. “The right approach can benefit everyone.”
About Edward Kearney and Sperry Van Ness
Edward Kearney is managing director of Kearney Commercial Realty Inc./Sperry Van Ness with an extensive background in various aspects of commercial real estate including investment analysis, landlord and tenant representation, and property tax abatement. SVN is a leading national brokerage firm that markets commercial real estate properties to an investment and brokerage community of more than 100,000. Kearney welcomes investors, brokers, and others with an interest in the Florida commercial real estate market to contact him today by calling 561-616-6262, or visiting http://www.svnpalmbeach.com for more information about the services he provides.
For more information about Edward Kearney and Kearney Commercial Realty Inc./Sperry Van Ness, please visit http://www.svnpalmbeach.com.
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