the marketplace—many of our clients are going to need a full slate of services now more
than ever,” says Levy.
Like CBRE, Marcus & Millichap Real Estate Investment Services Inc. began providing
distressed solutions in the 1990s, and has handled the disposition of some 5,000 troubled
commercial assets since then. Much of that business dried up in the post-RTC era. So much
so that when the firm formalized its distressed offerings in 2006 with the creation of the
special asset services division, the group was primarily a bankruptcy practice, says division
head Bernard J. Haddigan, who is an SVP and managing director based in Atlanta.
But the escalation of the financial crisis gave way to a rebirth of the business. Over the
course of the past year, according to Haddigan, the SASD has completed more than
2,000 special asset assignments and 300 dispositions for financial institutions, asset
managers and large owners, marking the highest volume of distressed asset valuations and sales since 1993 for the Encino, CA-based firm.
One such deal involved the sale of a 172-unit multifamily community, Blue
Garden Apartments in Westland, MI. The CMBS servicer, Capmark, took back
the asset after the owner fell into default. Occupancy was low and the property was in a state of severe disrepair, but after executing a turnaround
strategy, Marcus & Millichap sold the asset in September.
Expect more of these types of deals to come. “Where residential foreclosures and delinquencies might have started two years ago, it began
surfacing on the commercial side over the past few months and it’s
accelerating,” says Haddigan. “By the summer, there is going to be a
river of distress coming through. So 2009 should be a huge
year for our industry.”
For much of 2008, commercial foreclosures and defaults
were rare. But since September, a slew of properties have
either fallen into default or are facing foreclosure, according
to Real Capital Analytics. Last month, the New York City-based research firm launched the Troubled Assets Radar, a
database tracking the five major classes of commercial
properties in varying stages of distress. The firm’s inventory of troubled and potentially troubled assets already
tops $106 billion, and that figure is ballooning rapidly.
“If anything, our numbers are conservative. We are
aggressively trying to track all of the instances that
we know of, but that’s impossible” as RCA may not be
aware of all of the issues plaguing an asset or mortgage, says the company’s president, Robert M. White Jr.
He notes that there is certainly a lot more distressed
debt than what’s been reported in the CMBS arena; analysts
have generally pegged the default rate in that segment at well
under 1%. Securitized loans constitute just a third of RCA’s
database, which includes debt issued by insurance companies and mezzanine lenders.
“The trouble first emerged in development and redevelopment deals as well as failed condo conversions. Very little
of that stuff was securitized,” observes White. The development category, where an estimated $7 billion in construction financing is in default or has been foreclosed on,
currently holds the title for the greatest level of distress.
Mark Doran, chief operating officer at Transwestern, says
he has noticed “broken development deals that are either
undercapitalized, or instances where the local operating
partner is not pulling its weight relative to getting properties leased and managed properly.” The Houston-based
executive says these types of distressed situations, and a
wealth of others, are occurring across the board.
“Certainly the historical trends would suggest that we are
going to see more of this, at least in the near term.”
According to RCA, truly distressed situations, where
the mortgage is in default, the owner is bankrupt or
the property has already been foreclosed on, totaled