I make a living finding good real estate investments for my clients. I'm good at what I do and I make a good living. I find good deals by looking for real estate assets priced at wholesale as opposed to retail, so I deal with a lot of asset mangers and banks. For asset managers, I find buyers for their distressed assets and for my clients, I find good deals. I'm very busy these days.
Over the past 12 months the pendulum has swung. At the retail level, a year ago I was reviewing deals that looked good at a 7 CAP (7% return on purchase price), for medium credit tenants. Now I'm finding retail deals at 10+ CAP guaranteed by National credit tenants.
For wholesale deals I work with banks and court appointed receivers. As a point of clarification, I'm talking about hard assets or hard asset backed notes from banks and regulated lenders, not the toxic waste (CDOs) that the investment banks will unload on the Federal Government. I digress.
In terms of distressed assets, all lenders are required to “Mark to Market” non-performing assets. This means they value the asset in accordance with their current market value. Not all banks treat or value their distressed assets in the same manner. In other words, banks are reluctant to write down their portfolios too much, so naturally the definition of marketable value of an asset fluctuates.
Not every distressed asset deal is a good deal. For example, I found an income producing property for one of my clients that is a good investment at the right price. The investment had a recent appraised value of $20,000,000.00. The loan on the asset was $40,000,000.00. The bank had lent money on the post development value of the property, and somehow convinced themselves that loaning $40,000,000.00 on a $20,000,000.00 asset had a 60% Loan to Value (LTV) ratio. After preliminary discussions with the bank, we decided to offer $.75 on the dollar for the asset. We offered $16,000,000.00. The bank wants $30,000,000.00. When we asked them how they valued the asset, they explained the entitlements associated with the project carry a $14,000,000.00 value. We let our offer stand, but did not increase the offer. We'll get the opportunity to buy that asset in time.
When working with banks make sure you do your due diligence. Do your research prior to making the offer. In many cases, when dealing with distressed assets, you don't have a long time to inspect the investment after making an offer. The inspection/feasibility period is often short – sometimes as short as two weeks. Take the time to understand the asset prior to making an offer. At face value, paying $30,000,000.00 for a $40,000,000.00 note may seem like a good deal. Not when the asset is worth $20,000,000.00. This sounds like common sense, but there are several entities out there looking to place billions of dollars on hard assets, especially real estate. When placing that amount of money in an environment with a lot of discounted assets to choose from its easy to overpay for an asset, even if you are buying a distressed asset below par.
For more information contact Chris at christofer.pacheco@gmail.com .
For wholesale deals I work with banks and court appointed receivers. As a point of clarification, I'm talking about hard assets or hard asset backed notes from banks and regulated lenders, not the toxic waste (CDOs) that the investment banks will unload on the Federal Government. I digress.
In terms of distressed assets, all lenders are required to “Mark to Market” non-performing assets. This means they value the asset in accordance with their current market value. Not all banks treat or value their distressed assets in the same manner. In other words, banks are reluctant to write down their portfolios too much, so naturally the definition of marketable value of an asset fluctuates.
Not every distressed asset deal is a good deal. For example, I found an income producing property for one of my clients that is a good investment at the right price. The investment had a recent appraised value of $20,000,000.00. The loan on the asset was $40,000,000.00. The bank had lent money on the post development value of the property, and somehow convinced themselves that loaning $40,000,000.00 on a $20,000,000.00 asset had a 60% Loan to Value (LTV) ratio. After preliminary discussions with the bank, we decided to offer $.75 on the dollar for the asset. We offered $16,000,000.00. The bank wants $30,000,000.00. When we asked them how they valued the asset, they explained the entitlements associated with the project carry a $14,000,000.00 value. We let our offer stand, but did not increase the offer. We'll get the opportunity to buy that asset in time.
When working with banks make sure you do your due diligence. Do your research prior to making the offer. In many cases, when dealing with distressed assets, you don't have a long time to inspect the investment after making an offer. The inspection/feasibility period is often short – sometimes as short as two weeks. Take the time to understand the asset prior to making an offer. At face value, paying $30,000,000.00 for a $40,000,000.00 note may seem like a good deal. Not when the asset is worth $20,000,000.00. This sounds like common sense, but there are several entities out there looking to place billions of dollars on hard assets, especially real estate. When placing that amount of money in an environment with a lot of discounted assets to choose from its easy to overpay for an asset, even if you are buying a distressed asset below par.
For more information contact Chris at christofer.pacheco@gmail.com .
0 comments:
Post a Comment