It seems as though short sales are becoming common transactions throughout the residential side of the business. Prominent residential real estate companies in Chicago now tout themselves as Short Sale specialists. Not that there is anything wrong with this, but it goes to show how the residential industry has changed when it comes to getting deals done. While short sales seem to be a solution when one faces losing his equity or losing his home, the commercial real estate side of the business has many more options for a distressed property owner.
Short sales happen in commercial real estate, but a borrower also has the option of a deed-in-lieu— where the bank will take the property back based on a negotiated settlement which could range from loss of equity to other penalties.
A forbearance agreement is when a borrower signs an agreement with the bank that gives him more time to sell, come up with additional equity or change the current distressed status in some form or another. The terms of the loan are usually extended (often called “kicking the can down the road”) for a period of time in which the loan will be renewed or will sometimes expire, delaying an inevitable foreclosure.
The latest strategy for a lender is when he chooses to sell the loan to another party, preferably a private group, so that the manner in which the borrower and lender negotiate their personal deal is not regulated by FDIC standards. This allows a lender and borrower to work things out amongst themselves if they so choose. However, this is not to say that private owners who have bought the note will ultimately foreclose on the property. This is especially true if the underlying real estate has value above the original purchase price of the note. At this point, most people will want the defaulted borrower out of the property to capitalize the value they earned if they bought it below market or loan value.
To capitalize on the Note Sales strategy of disposition for our clients, Sperry Van Ness Commercial Real Estate Advisors has entered the national commercial loan sales arena. This expansion into the commercial loan sales marketplace occurred as a result of an exclusive strategic partnership formed with Benewolf, a premier provider of loan sale advisory services and Sperry Vann Ness on a national level. This allows SVN to be a fully integrated advisory firm with services ranging from brokerage, leasing, asset & property management, work-out & restructuring services, loan sales, electronic loan, review & bidding platform, and real estate auction services.
From short sales to deeds-in-lieu to loan sales, there seems to finally be more options for borrowers to dispose of troubled assets than ever before. As turbulent as our industry has become, at least more creative solutions are available to our clients.