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REO Lifecycle Session at CCIM Live!
 

REO Lifecycle Session at CCIM Live!

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Know how to recognize and find solutions to valuing, managing, buying, and selling troubled real estate assets? After attending this forum you will have a good grip on the life cycle of a troubled ...

Know how to recognize and find solutions to valuing, managing, buying, and selling troubled real estate assets? After attending this forum you will have a good grip on the life cycle of a troubled asset and how you can recognize where business opportunities exist.

Listen as a banker, a broker and a property manager currently active in this market discuss such topics as:

• Identifying lender, broker, manager, and owner objectives.
• The cradle to grave story.
• The pitfalls of working the Troubled Asset Market.
• Identifying opportunities for yourself and your
clients.
• Where do REO listings reside?
• Get a feel for foreclosures and short sales.
• What is the sales hot button?

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  • INTRODUCTION
  • WHAT ’S IN YOUR TOOLBOX
  • WHAT ’S IN YOUR TOOLBOX
  • STAND OUT IN A CROWD Are you relying on the reputation of your employer? Or, do you think you ’d do better if you worked for a bigger company? Don ’t you have enough competition already? Whether you ’re a one-person firm, a small boutique shop, or the a member of the largest firm in your community, would you like to have the tools and skills to stand out in a crowd? To tackle the toughest problems and be paid accordingly? Would you like to make more money by being a better problem solver? Then understand this, “We are paid in direct proportion to our ability to bring value to the transaction.”
  • WHAT ’S IN YOUR TOOLBOX Tools – Do you need to clean and polish any of your existing tools, or is your toolbox missing any tools you ’ll need to succeed in the current marketplace? Skills - Do you carry any tools that you don ’t know how to use? Knowledge - Does your knowledge set meet the requirements of your clients, prospective clients and market conditions? Experience – Do you preach what you practice and call upon both your positive and negative experiences? If you need more experience, do you have a suitable mentor? Relationships – Have you put together the right team? Are they all wearing the same colored jersey? Creativity – Do you practice creativity, identifying all viable alternatives, testing each option and supporting your recommendation? Actions – Are you prepared to support your recommendations through action (negotiations, closing skills, contract writing, overcoming obstacles)?
  • SHARPEN YOUR SAW A friend of mine once said “Now’s the time to sharpen your saw”. Morgan also said, “You don’t shut down the mill when it’s time to sharpen your saw.”
  • TOOLS “ You don’t pay a mechanic to use their tools, but to fix our problems.” “ You can’t nail a nail with a skill saw.” Do you have the right tools in your toolbox? Financial Calculator Market Studies Spreadsheets Photography Media Internet
  • SKILLS “ The genius of a master painter isn’t the fact that they use a brush.”
  • SKILLS “ They have the skill and talent to know where to put the paint.” Do your skills match the needs of our current turbulent environment? Do they include? Communicating (listening, speaking clearly, technically correct) Negotiating (balanced, fair, win-win) Analytics (comparative lease analysis, lease vs. own, disposition alternatives) Conceptual Understanding (Cap Rate, Cash-on-Cash, IRR, NPV, DCF) Marketing (push, pull, promotion, advertising, cost-benefit analysis) Process & People Management (due diligence, financing procurement, value)
  • KNOWLEDGE Will Rogers once said, “A man only learns in two ways, one by reading, and the other by association with smarter people.” Does your knowledge toolbox include… Market and Product Knowledge? Financial and Market Analytics? User and Investor Decisions? After-Tax Impact of Financing and Leverage? Leverage of Basis? Troubled Debt Restructuring? Valuing Investments in Turbulent Times? Raising Debt and Equity Capital? Development? Litigation Support? Consulting and Advisory Services?
  • EXPERIENCE Does your experience include… Success (in spite of yourself)? Dumb luck? Just being at the right place at the right time? A plan for success? Setting yourself apart from your competitors? Working and implementing your plan? Owning commercial real estate? Being a landlord? Making mistakes? Sharing with others? You can often make up for a lack of experience with hard work and enthusiasm, and/or teaming with others
  • RELATIONSHIPS “ It’s easy to make friends. It’s harder to develop relationships.” “ It’s hard to find customers. It’s even harder to cultivate customers that stick with you forever.” What are you doing to make sure your clients stick with you forever?
  • CREATIVITY The questions isn ’t…what’s in the box?
  • CREATIVITY The question is..what ’s outside the box? What if your client asks… Should I lease or buy? Do you think I should sell or hang on to it? Which location do recommend? What ’s the tax impact? How much should I pay? Why? What are my other options?
  • SUCCESS STRATEGIES Treat every transaction equally – Treat the largest and smallest clients and transactions with the same care and concern Every assignment is an opportunity – Document your knowledge, thinking, problem solving, recommendations and skills. Price your talent accordingly – Most folks underestimate how much people will pay for someone to solve their problem. Ask anyone with a toothache. Sell the salami a slice at a time – Break down every assignment and your fee into bite-sized chunks. Most folks won ’t pay $80 bucks for a meal, but will gladly order four tapas at $20 bucks a piece, plus the booze and tip. FEE, not FREE – Even Gillette doesn ’t give away the razor handles. Your time is worth money– either to you or the next client. It’s OK to offer a discount or a credit to a good customer or someone who’s already bought a slice of the salami. Just get paid whether the deal flies or dies. Services are not benefits – See next slide
  • PRODUCTS AND SERVICES Most firms offer the same products and services…
  • FEATURES AND BENEFITS Identify issues no one else considered Emphasize features and benefits Focus on outcomes Make them look good or better than they already do
  • ACTIONS So, what are you going to do about it? Let ’s get started…Take action Treat every party and transaction like your next job depends on it Document every deal for “show and tell” Don ’t avoid low hanging fruit, but don’t avoid reaching higher either Learn something few others know Clean and lubricate your tools Use the right tool for the job and replace them when necessary Set yourself apart from the crowd Assemble the best team possible – “If you think you know it all, others will know you don’t.” Promote the benefits of renting your talent Price your talent accordingly Get paid whether the deal flies or dies You have limited time to attract the best clients, so periodically help the inferior ones find a new broker Work only the most interesting and self fulfilling assignments you can find.

REO Lifecycle Session at CCIM Live! REO Lifecycle Session at CCIM Live! Presentation Transcript

  • REO LIFECYCLE
  • Jeffrey S Pitcher Ballard Spahr, LLP Partner Phoenix, AZ Tim Michel Cassidy Turley Senior Managing Director Indianapolis, IN Steve Price Realytics, LLC Owner Colorado Springs, CO REO Lifecycle Panelists Working with Servicers and Receivers Broker Tools Required To work with REO The Legal Perspective
  • REO and NPN Market CMBS and Banks
  • REO and NPN Market For the Q2 reporting period in 2011 3,543 banks are reporting commercial REO for a total of $10.14B. So far this year 73 banks have been closed by FDIC. Source; FDIC
  • REO and NPN Market Bank owned commercial property currently represents about 17% of the total distressed commercial real estate balances which for our purposes is made up of 30-day late, 90-day late, non accrual, and bank owned commercial property totals held at (non OTS regulated) US banks as of this release. Source; FDIC
  • REO Market MF 13% Owner Occupied 30% Construction Development 22% Income Producing 35%
  •  
  •  
  • 50 US Markets OFFICE APARTMENTS INDUSTRIAL RETAIL
  •  
  • -77%
  •  
  •  
  • Peak Years CMBS BANKS How long will it last?
  • Tim Michel Cassidy Turley Senior Managing Director Indianapolis, IN Working with Servicers and Receivers
  • CMBS LOANS (Securitized Loans)
    • Multiple loans pooled and transferred to a trust
    • Trust issues series of bonds
    • Various tranches are sold (AAA to B-)
  • REMIC (Real Estate Mortgage Investment Conduit)
    • Tax Free Structure in which bonds
    • are held
  • POOLING AND SERVICING AGREEMENT
    • Governs the allocation and distribution of
    • proceeds and losses to the Bond holders
  • MASTER SERVICER
    • Services the loans through maturity unless borrower defaults
  • SPECIAL SERVICER
    • Loans transferred to Special Servicer upon borrower default
    • Must maximize the recovery
    • Loan modifications
    • Foreclosures
    • Deed in lieu
    • Negotiated payoffs
  • Directing Certificate Holder (B-piece buyer)
    • Most subordinate Bond Holder
    • First loss Bond Holder
    • Can appoint or terminate Special Servicer
    • Many times they are the Special Servicer
  • Source: Morningstar Most-Active Special Servicers Special Servicer #Loans Balance ($ mln) Mkt Shr % LNR Partners 1,295 26,376.76 30.76 CW Capital 952 19,796.91 23.09 C-III Asset Management 665 9,944.76 11.60 Midland Loan Services 471 7,994.12 9.32 J.E. Robert Cos. 317 4,777.78 5.57 Helios AMC 194 3,691.77 4.31 Torchlight Loan Services 180 3,474.61 4.05 Wells Fargo Bank 44 3,257.36 3.80 Bank of America 17 2,597.80 3.03 Berkadia Commercial Mortgage 300 2,145.11 2.50
    • 4,562 loans totaling 85.7 billion
    Most-Active Special Servicers
  • Source: Morningstar Property Type #Loans Bal ($mln) % of total Office 1,071 24,269.19 28.30 Multifamily 949 20,113.01 23.46 Retail 1,448 17,747.27 20.70 Hotel 434 12,711.28 14.83 Industrial 294 3,603.83 4.20 Healthcare 10 278.63 0.32 Other 346 7,018.83 8.19
  • Special Servicer Divisions
    • Work-Out Groups
    • REO Groups
  • Work-Out Groups
    • Responsible for loan modifications, restructuring, and ultimately foreclosure
    • Look to REO groups usually to determine who are the best providers in each market
    • When an asset is in special servicing or work-out, the payments back to the bond holders cease.
  • REO Groups
    • These groups will ultimately oversee the asset. They become the owner.
    • They hire firms to manage, lease, and sell.
    • After assets transfer from work-out to REO, payments back to bond holders resume until asset is sold to a third party.
  • What services are provided by the Commercial Real Estate Industry?
    • Broker Opinions of Value
    • Receiverships
    • Property Management
    • Leasing
    • Disposition
    • Construction Management
  • General Receiver Duties & Responsibilities
    • Appointed by and responsible to the Court, and has fiduciary duty to all creditors
      • NOT working for the foreclosing Lender
      • NOT working for the Debtor or Owner in Foreclosure
    • • Receiver ' s decisions must place the interest of preserving the Property first
    • Generally responsible for such activities as collecting income, paying bills, maintaining insurance.
  • Who can be a Receiver?
    • It varies from state to state and really depends on each states law:
    • • Some states allow a corporation to be
    • appointed.
    • • Many states, however, require that an
    • individual be appointed as a Receiver.
    • • Some states even have approved lists of
    • Receivers and you must be on that list!
  • The Receiver ' s Authority
    • A Receiver ' s Power or Authority comes from two places:
    • The Order entered by the Court that Appoints the Receiver, and
    • 2) The state ' s law where the lawsuit is pending. Each state has its own laws that govern how a Receiver is to conduct his or her services.
  • Why Become a Receiver?
    • The Receiver has control of the Property and appoints all property vendors thereby providing a real estate service provider with:
      • • The opportunity to manage the Property
      • • The opportunity to lease the Property
      • • The opportunity to sell the Property
  • Receivership Process
    • 1. The Filing : A foreclosure suit is filed or is anticipated.
    • 2. The Invitation : Generally the Lender in a foreclosure asks the RE
    • company to act as a Receiver. (This request can come before or
    • after the foreclosure action is filed.)
    • 3. The Motion : The party seeking to have a Receiver appointed
    • will file a request with the Court called “a motion to appoint a
    • Receiver. ” There can be agreements to appoint a Receiver or
    • another party may vigorously oppose a Receiver ' s appointment.
    • 4. If the motion is granted, the Court will enter an Order
    • Appointing a Receiver .
  • Receivership Process
    • Essential Provisions to the Order Appointing a Receiver
      • Receiver ' s fee.
      • Authorization to employ the company as property manager.
      • Authorization to employ the company as listing broker.
      • Authorization to retain Receiver ' s own legal counsel at the expense of the property.
      • Expenses of Receiver must be expenses of the property.
  • Receivership Process
    • Essential Provisions to the Order Appointing a Receiver ( continued )
      • Receiver must be named as an insured on existing insurance
      • policies or be authorized to obtain insurance if it is not in
      • place.
      • Authorization for receiver to take immediate possession of the property and bank accounts, and to collect rents and all other amounts payable to landlord.
      • State if a Receiver ' s Bond is required and amount.
      • YOUR ATTORNEY SHOULD REVIEW ANY ORDER APPOINTING YOU AS A RECEIVER!
  • You ' ve Been Appointed Receiver: Now What?
    • • Find the Money : locate all bank accounts and sources of revenue
    • (leases, security deposits, accounts receivable, etc.)
    • • Verify Insurance : make sure that the property ' s insurance is in
    • place. If it is not in place…get it.
    • • Obtain copies : of leases, loan documents and vendor contracts
    • and give notice to tenants, lenders and vendors.
    • • Possibly inventory personal propert y: An inventory may be
    • required (depends on the Order Appointing Receiver).
    • • Be ready to report to the Court : Make sure you have a suitable
    • report form for required periodic (generally monthly) reports to
    • the Court.
    • The Order Appointing the Receiver will give the Receiver the authority to make some decisions without Court approval (opening bank accounts, certain expenditures etc.)…
    • Other decisions may require Court approval, such as signing leases or other contracts that may extend past the Receivership large dollar capital improvements, etc.
      • – Know the Order Appointing you as Receiver
      • – Know the state ' s law governing Receivers
    You've Been Appointed Receiver: Now What?
  • Don ' t Forget…
    • Receiverships are highly specialized areas of the law, and the law differs significantly from state to state.
    • Generally, the receiver has the same immunities as the judge.
  • Jeffrey S Pitcher Ballard Spahr, LLP Partner Phoenix, AZ The Legal Perspective
  • Recent Receivership Issues
    • Does the receiver have standing to defend claims and lawsuits arising prior to the appointment of the receiver?
    • Can the receiver pay expenses arising prior to the appointment of the receiver?
    • Are security deposits that are included in the receivership estate to be transferred to the lender?
    • Does the receiver need to make new utility deposits?
  • Receivership Sales:
    • Does the receiver have the authority to sell the real property?
      • Does the receiver have the authority to sell the real property free and clear of liens?
      • Is title insurance available and when can the receiver transfer title?
    • What limitations are there for receivers to extend or enter into long term leases.
    • Can a receiver pay tenant improvement and leasing commission costs?
    • Who is to receive the rents and other income from the property in the receivership estate after a note sale?
  • Steve Price Realytics, LLC Owner Colorado Springs, CO Broker Tools Required To work with REO
  • What ’s in your toolbox?
  • Is it time to knock the rust off your tools?
  • Or your ability to use them?
  •  
  • “ We are paid in direct proportion to our ability to bring value to the transaction.”
  •  
  • “ Now’s the time to sharpen your saw.” Morgan Llewellyn, CCIM Kent, WA
  • “ We don’t pay a mechanic to use their tools, but to fix our problems.” “ We don’t pay a mechanic to use their tools,
  • “ The genius of a master painter isn’t the fact that they use a brush.”
  • “ They have the skill and talent to know where to put the paint.”
  • Surveyors charge not for hammering in the stakes, but knowing where they should go.
  •  
  • Investors Business Owners Brokers Allied Professionals CPAs Attorneys Managers Developers Contractors Architects Bankers Landlords Owners Vendors Referrals
  • The question isn ’t…what’s in the box?
  • “ The question is… what’s outside the box? The question is…
  • Success Strategies
    • Treat ever y transaction equally
    • Every assi gnment is an opportunity
    • Price your talent accordingly
    • Sell the sa lami a slice at a time
    • FEE, not F REE
    • Services a re not benefits
  • Clients don ’t really care about your products or services.
  • They care about how your product or service will improve their situation.
  • “ So what are you going to do about it?”
  • Jeffrey S Pitcher Ballard Spahr, LLP Partner Phoenix, AZ Tim Michel Cassidy Turley Senior Managing Director Indianapolis, IN Steve Price Realytics, LLC Owner Colorado Springs, CO Questions for our Panelists? Working with Servicers and Receivers Broker Tools Required To work with REO The Legal Perspective