Top real estate brokerage firms bid to be the listing agent to remarket bank owned properties
Some banks direct sell
All bank websites have basic information and contact
Other websites have general info on some bank owned assets such as Loopnet, and broker controlled websites
What are the issues to consider on an REO?
Existing asset value is determined by trailing 3 or 12 month NOI (from a lender perspective to acquire debt and finance) less debt available to acquire because performance is below market
Many buyers are using double digit cap rates for NOI analysis due economy eroding values
Concessions on rent almost always devalue income stream
Include reserves above the line when determining value
Trend Analysis – what is it worth? Cap Rate Analysis Acquisition Cap Rate Going In Purchase Price XXXXXXXX Trailing 12 months Cash Flow Income – expenses and reserves Trailing 12 months NOI Income- Expense Cap Rate on Trailing 12 mos. Cash Flow Trailing 12 / purchase price Cap Rate on Trailing 12 mos. NOI Cash flow on trailing 12 / purchase price Stabilized Valuation Year 3 (2011) Cash Flow -projected Cash flow at stabilization Y 3 Year 3 (2011) NOI - projected Project NOI Sale Cap Rate used in Model Cap Rate determined by market Year 3 (2011) proj. value on cash flow Projected Cash flow / cap rate Year 3 (2011) proj. value on NOI Projected NOI / cap rate Value to Project Investment Projected NOI / Total Investment
Trend Analysis – what is it worth? Cap Rate Analysis Acquisition Cap Rate Going In Purchase Price $22,500,000 Trailing 12 months Cash Flow $779,763 Trailing 12 months NOI $919,763 Cap Rate on Trailing 12 mos. Cash Flow 3.47% Cap Rate on Trailing 12 mos. NOI 4.09% Stabilized Valuation Year 3 (2011) Cash Flow -projected $2,606,220 Year 3 (2011) NOI - projected $2,746,220 Sale Cap Rate used in Model 8.00% Year 3 (2011) proj. value on cash flow $32,577,750 Year 3 (2011) proj. value on NOI $34,327,750 Value to Project Investment 104.6%
Conclusions to REO acquisition
Must have access to debt
Debt underwriting more stringent than typical – less debt available
Must have access to equity***
Economy has changed all of the rules!
If you can buy right on an REO – great opportunity!