Distressed Asset Property Management-Will the Tide Begin to Turn?
- Jul 07, 2010
With the recent increased activity in the distressed asset market, I find myself thinking back to before 2007 and 2008 when the purchase of an asset was performed with little money down and was highly leveraged. There was little in the way of equity and purchases were made with the anticipation of a quick sale and profit. This changed in late 2007 and 2008 as borrower’s started to default and there was no interest to purchase these securities anymore, and lending all but dried up. Distressed Assets and the management of these assets were now the concern, as it was assumed the banks were coming immediately as logic dictated that banks in financial trouble could get back into the black by repossessing and selling these properties
The perception was that, like Distressed Asset funds and departments were being advertised daily with access to the lenders in order to gain an opportunity to purchase or manage these assets that were top of mind.
Instead of repossessing and selling, the banks decided to allow the borrowers to hold onto these assets. If you happened to be the Property Manager of one of these properties on a life line taught, to provide all lease required services, while at the same time reducing costs (but not to the bare bones), you were in a very precarious situation. Having managed vacant and partially vacant properties under extreme financial hardship over my 20 plus years in the business, I have had the experience of balancing these constraints.
For other individuals that may have only managed Class A Trophy Properties, who in the past were typically owned by financially stable corporations with tenants paying high rents, having a top support staff was to be expected as compared to Class B and Class C properties where rents are less and net operating income not as great as a trophy property. Therefore, many Property Managers had to learn to provide the same services making due less would not be out of their environment in having to manage a distressed asset.
With the recent sales of properties on Madison Avenue and Lexington Avenue exceeding expectations along with pent up demand and cash on hand to buy, banks are now looking at taking back these assets.
There will be an estimated $750 Billion dollars of commercial real estate that will most likely be taken back into the lenders hands, needing management by those experienced in distressed assets like myself. The wave appears ready to take place, a few years later than anticipated, better late than never.
What are your thoughts?
Jack Terranova, PE, RPA, LEED AP
Senior Vice President-Cassidy Turley New York