NEWS FRONT
State of Market Presents Owner-User Opportunity
LOS ANGELES—Owner-users are increasingly
on the lookout for opportunities to buy
an investment-quality building rather
than continuing to lease space. So says CB
Richard Ellis’ Kevin Shannon, who cites
two recent deals to illustrate his point. In
the City of Industry, CA, American Paper
& Plastics recently acquired a
296,960-square-foot building at 500 S.
Seventh Ave. for $15.3 million, and in
Pomona, CA, Maxxsel Apparel bought a
22,135-square-foot building at 1613 W.
2nd St. for $2.7 million.
In the City of Industry transaction, the
buyer purchased the property at a substantial discount to replacement cost in a
supply-constrained submarket with significant economic and physical barriers
to entry.
In the Pomona transaction, Maxxsel
bought its new building from Long
Beach, CA-based Seventh Street
Development at the Mission-71 Business
Park. Maxxsel had been looking to lease
a smaller building than the one it occu-
pies in Baldwin Park. However, accord-
ing to CBRE’s Kevin Herron, who repre-
sented the buyer, the wholesale apparel
company ultimately decided that by
acquiring a building at a time of record-
low pricing and low financing rates avail-
able through a Small Business
Administration loan, it could achieve a
mortgage payment below what it would
be paying on a lease.
says Marc Posthumus, an owner-user specialist with the company’s San Diego
office. —Natalie Dolce, Bob Howard
SAN JOSE—The latest addition to Grubb &
Ellis Co.’s industrial group is Jeffrey Ball,
who will be an SVP. He joins the company
from Ball & Co. Inc., a private commercial
real estate firm he founded in 2008. ◆
For more executive moves, please visit
www.globest.com/executivewatch.
Vital Signs
Multifamily Builders May See More Work
Multifamily Building Permits
Los Angeles, Q2-2005 to Q4-2015
According to Beacon Economics,
by the end of 2015, multifamily
permits could reach nearly
1,400 units per quarter in Los
Angeles as developers start to
meet pent-up demand for
apartments and other attached-home alternatives
Source: Beacon Economics
Thousands of Permits
4. 5
4.0
3. 5
3.0
2. 5
2.0
1. 5
1.0
0.5
0.0
Q2-05 Q1-07 Q4-08 Q3-10 Q2-12 Q1-14 Q4-15
Seasonally Adjusted Beacon Forecast
Actual
Moving Through the Distressed Asset Cycle
The anticipated flood of distressed assets to hit the market has
not materialized as the cycle crawled through 2009 and the first
half of 2010. Yet recently, banks, special servicers and insurance
companies have accelerated their efforts to foreclose on distressed commercial real estate due to an oversupply of motivated
investors and the undersupply of assets.
Now that the process has begun, it is
clear that when the assets are correctly
handled, the pre-foreclosure process
alone is extremely
complex and takes time. Depending on
variables, the pre-foreclosure process can
last up to 12 months.
What strategies might various financial
institutions employ to work through their distressed assets for
the remainder of 2010 and 2011? Foreclosing on commercial
real estate can be time-consuming and expensive. Legal,
receivership and property management fees; unpaid operating
expenses; and unfunded capital expenditures may be deemed
too expensive given the value of the underlying collateral. A
few lenders have ordered receivership-assisted sales, prefer-
By John Strockis
ring to either sell the note or orchestrate a discounted payoff.
This allows them to bypass post-foreclosure holding costs but
requires them to forego some current value.
Other lenders will want to foreclose as soon as possible and
hire a third party asset manager to unlock the value, reduce
operating costs, mitigate ownership risks, stabilize the asset
and sell into a recovering capital market. Still, other groups of
lenders will target to sell their assets 90 days from foreclosure.
Lenders still face obstacles when a foreclosure decision is
made. Do the personal guarantees associated with a loan have
any worth? Is the risk of bankruptcy real? Some of the properties have lacked the appropriate monetary reserves and the
properties may need substantial maintenance. Environmental,
structural and other physical issues likely need investigation.
Asset business planning is essential. Prior to foreclosure, the
lender—and soon-to-be owner—must have a well-developed
plan identifying multiple strategies to recover value supported
by comps, cash flow analysis and risk/rationale assessment.
John Strockis is executive managing director of asset services at Voit Real
Estate Services’ Newport Beach, CA office. He may be contacted at
jstrockis@voitco.com. The views expressed here are the author’s own.
