I attended the Interface Distressed Asset Conference last month in Miami with our Loan Sales team leader, Pat Blount. I facilitated one of the panels on the topic of “Value, who knows”? Not only was the temperature abnormally cold, so was the outlook for commercial real estate values as we head in to 2011. The most popular panel was named “Cracking the Vault, doing business with the FDIC and Special Servicers”. The room was packed as it was evident that brokers want to know ”how to do business with” and have been frustrated by the system in place but the panelists simply said “don’t call me, I’ll call you”. I didn’t see anyone in the audience satisfied with that answer.
I thought Pat Blount’s observation as a “Loan Sales advisor” versus mine as a real estate advisor was interesting so I am sharing his comments with you on my blog today. Pat is CEO of www.benewolf.com a loan advisory firm out of Oklahoma that handles our SVN Asset Recovery Team loan sales. I had him participate on my “Value . . . who knows” panel.
“There were forty-five (45) panelists and speakers with various backgrounds including loan sale advisors, appraisers, CMBS special servicers, commercial real estate brokers, receivers and lenders. The consensus was that we have likely hit bottom in the residential markets (excluding land) but “not” yet hit bottom in the commercial real estate world. This is due to two major factors (1) the massive number of CMBS maturities looming for 2011 and 2012 and (2) the off market or “shadow inventory” of bank held delinquent CRE loans that are a result of the “delay and pray” or “extend and pretend” strategy employed by most lenders during the period from 2008-2010.
As a matter of fact, one moderator asked the blunt question; “Are we passed the “extend and pretend” cycle?” and most panelists answered “yes.” My opinion and comment is that we may be past “the pretend” period but we are now in the “modify and pacify” period meaning the lenders are continuing to modify loans to pacify regulators.
Another overall consensus was that both investors and lenders believe most appraisals are “absolutely worthless.” All believe that you can still get an appraisal at “any value” you wish. But since the regulators continue to accept the appraisals, “game on.” It was interesting to note that although appraisers are the value experts in the market, Broker’s Opinion of Value (BOV’s) are considered quite valuable, extremely reliable and very necessary when determining current market value. This may be something real estate brokers might consider the next time they provide a BOV for $150.00 or free of charge for a lender.
I find it interesting that when an appraisal is considered too high that “nobody” believes it, but when one is clearly too low that “everybody” believes it.
In summary the mood was predominately upbeat, this could be because the speakers largely consisted of advisors, brokers and receivers but it appears that the transaction gridlock between lenders and investors has broken for now. As a result commercial real estate values are expected to stay flat at best for the near term but clearly the purging of the massive inventories of nonperforming loans and lender owned distressed assets is necessary for a fluid marketplace and to create an opportunity for value to return to the commercial real estate market. It does appear as one speaker said; “2011 will be the year of the loan sale.”
For information on loans we currently have for sale and how you can bid on them visit. www.svnart.com
Tags: Loan Sales