Ernst & Young’s new US Real Estate Distress Services Group
is geared up to help the industry tackle the pitfalls and
opportunities of the market
is Ernst & Young LLP, which recently established a US Real
Estate Distress Services Group. Comprised of professionals
from a variety of the firm’s service areas and multiple geographic regions, the group’s intent is to provide real estate
companies, lenders and investors help with their distressed
debt issues. Acting in concert with E& Y’s Transaction Advisory
Services, Tax and Assurance & Advisory Business Services
divisions, the team works with the firm’s restructuring practice to develop the right plan for its distressed clients.
The new entity is essentially led by a steering committee of
six partners. Heading up the effort is Mark Grinis, a partner
in the Assurance and Advisory Business Services practice in
E&Y’s New York City office. Thomas Horton, executive director with E&Y’s financial services office, brings to the team his
knowledge of real estate management, transaction analysis
and processing, accounting policies
and procedures, budget formulation and financial management services—as well as an insider’s knowledge of the government’s efforts to
address the distressed market. The
Washington, DC-based executive
currently works with a number of
government entities, including the
US Department of Treasury’s
Troubled Asset Relief Program,
Ginnie Mae and the Federal
Communications Commission.
Adding transaction experience is a trip of E&Y experts.
Michael Straneva, a Phoenix-based partner who leads the
Transaction Real Estate team, represents companies, senior
lenders and creditors in real estate workouts and restructurings. Joseph Rubin, a principal in the Transaction Real Estate
practice within TAS, specializes in measuring the risk of real
estate debt financings and assisting lenders in designing
Basel II-compliant commercial mortgage credit grading systems and credit policy. Meanwhile, Christopher Seyfarth,
also a Transaction Real Estate partner, provides financial
advisory services to distressed debt sellers and investors out
of E&Y’s San Francisco office.
Rounding out the team is New York City-based real estate
tax partner Richard Solway, who focuses primarily on providing merger and acquisition tax advisory services to global
private equity, infrastructure and real estate clients.
Like much of the rest of the industry, the executives are
geared up for the challenges to come. “We are clearly entering an historic, unprecedented time,” says Grinis. “This is as
difficult a period as the 1950s or the 1970s. We had a strong
decade of growth in demand, so it’s not surprising to us at all
that there’s a relatively significant pullback.”
The extensive use of leverage caused asset prices to skyrocket, he notes. The next logical step in the cycle is to
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deleverage while asset prices decline. “Corresponding to that
is excessive debt and non-performing loans,” says Grinis.
“With a correcting commercial real estate market, we’re
going to be in this for two to three years.”
Indeed, the partners together literally have decades of
experience in markets across the globe. Many of the members were key players in pulling the industry out of the last
major downturn—the Savings & Loan debacle of the late
’80s and early ’90s. Grinis served as a key contributor to the
US government’s efforts to strengthen the financial sector
following the crisis, as did Seyfarth, who assisted the
Resolution Trust Corp. in its early real estate portfolio transactions. Rubin, as a leading advisor to the RTC, drafted its
due diligence manual, which set industry standards for data
collection, site inspections, due diligence and portfolio valuation.
Meanwhile, Tom Horton actually
worked for the RTC from its inception
on Aug. 2, 1989 to its dissolution on
Jan. 31, 1995. As head of all asset management, he handled default and delinquent real estate mortgages, primarily
commercial. He served in a similar
capacity for the Federal Deposit
Insurance Corp. before joining Ernst &
Young nearly 12 years ago.
After the S&L crisis died down, the
industry entered period of relative prosperity. Commercial
real estate boomed as the sector became an accepted investment class, with billions of dollars in capital flowing into all
segments of the property markets. Distress became a forgotten concept—almost.
Yet for the folks at E&Y, there was plenty of work to do
overseas. Major markets in Europe and Asia were going
through banking crises of their own during the late 1990s
and early part of this decade. During this period, Grinis was
working in E&Y’s Tokyo office, and with Seyfarth and Horton,
helped sellers and investors in Japan, China, Taiwan, Korea
and Thailand tackle the region’s banking crisis. Seyfarth
then moved to Europe, where he worked on distressed debt
situations in Germany and other countries until last year.
While each country had its differences, says Seyfarth, the
problems could essentially be boiled down to one issue:
banks were overburdened by non-performing loans. In many
cases, banks sought to get the troubled assets off of their balance sheets by putting them on the sales block.
Sound familiar?
After years of low interest rates fueling frenetic investment
and financing activity—during which many high-risk, creative deals were struck—the US is now facing the same issues
as these foreign markets did. Several billions of dollars worth
of loans are in a distressed situation, and several more are
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