Distressed Asset Mastermind Groups

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Distressed Assets Mastermind
Groups, The 90’s and Now, and
How Banks Can Minimize
Commercial Real Estate Losses
Brecht Palombo & Ken Hecht

PODCAST
TRANSCRIPT
www.distressedpro.com

1 of 13 Wednesday, January 6, 2010 | distressedpro.com

Brecht Palombo::  Hey, good morning. This is Brecht Palombo:, and 
thanks for joining us on this call again today. I have Ken Hecht; Ken is 
somewhat famous… or he had a somewhat famous deal here in the New 
England area, called the Wang Towers—which, hopefully, we’ll hear about 
a liGle later on in the call. Ken is known for… he’s put together more than 
4,000,000 feet in deals for Wal‐Marts all throughout New England. And, 
before that, Ken was a broker at CBRE, where he actually started and ran 
their retail group for a Pme. Ken, we’re psyched to have you the call today. 
Thanks for being here.

Ken Hecht:    You’re welcome. Great to be on the call.

Brecht Palombo::  And, I know you’re a busy guy, so I want to just cut 
right into it, and… why don’t you tell us just a liGle bit about what you’ve 
been doing during the run‐up pre‐crunch, if you would… or if you even 
want to go back a liGle bit further, and give us a career summary so people 
know who they’re talking to, or who they’re listening to.

Ken Hecht:    Well that’ll be great. Brecht, thanks a lot for giving me 
the opportunity to be on the call. Basically, I went to work with CB Richard 
Ellis—at that Pme it was Coldwell Banker Commercial in 1986—in 1988, I 
won the Rookie of the Year award for the Northeast in investment sales; I 
sold 13 buildings my first year in the compePPon. And, then the wheels fell  
off the bus in ’89, which is apropos, which… with respect to the Wang 
Tower deal…

Brecht Palombo::  Right.

Ken Hecht:    …and then, really aZer that, I went to Whi[er 
Partners for five years, where I became a partner. And then, basically, I was  
the last partner in, and we sold half the company to CB; it became CB 
Richard Ellis Whi[er Partners, where I then founded the retail group and 
ran the retail group—which was really a very investment‐oriented group, 
including Bill Moylan and Chris Angelone, who are sPll over at CBRE; good 
friends of mine. Then, I developed a liGle client called, “Wal‐Mart” while I 
was there, based on a referral from an old college buddy from 20 years 
ago. And, basically, once I… aZer September 11, 2001, I rePred from the 
partnership, and really rolled out a program in Maine, MassachuseGs and 
Rhode Island for Wal‐Mart, and ended up doing about 4,000,000 feet for 
them. But, both… mainly acquisiPons and ground‐up developing, and a 
few disposiPons thrown in there. Then—really in the mid‐2000s—we 
started doing our own development, and we built drug stores, and we built 
shopping centers, and it was really the flea jumping on the elephant 


approach, where we knew where there was some great acPvity going, so 
we would buy the land across the street from some… either Wal‐Mart or 
other major development, then pop up a smaller shopping center. So, 
what’s happened is… in the run‐up, we really developed all throughout the 
high Pmes, and now we’re in a very low Pme. But, fortunately—knock on 
wood—for us, we’ve picked great locaPons, and we’re basically very close 
to 100% leased, and we sold some assets and made money, and it’s 
actually a preGy good story. And, now we’re ready to just buy up a storm; 
we’re loaded with addiPonal capital and lots of experPse, and we’re really 
out there right now, working hard to acquire other assets.

Brecht Palombo::  Okay. Well, I want to get into… I want to get into all 
about what you’re doing now as you reposiPoned, as a lot of people have 
reposiPoned, but… take me back, just for a minute… this deal… I knew 
about this deal years ago, before… I mean, I’ve… I’ve been hearing about 
this deal from anybody who’s been in business… in the real estate business 
in New England... as long as I’ve been around, I’ve been hearing about this 
deal. And, then I recently had the opportunity to meet you at a talk I was 
giving, and… and, you announced yourself as the… the broker on this deal, 
and so, it’s the Wang Tower deal… just take us back a liGle bit, and… what 
was it, and how did it… how did you get it? How did it work out for your 
buyer? And, just lay it out for us, if you would.

Ken Hecht:  Well, it’s an interesPng story, and I think, from a Pming 
perspecPve, it’s interesPng to note that… as we talk later on—maybe—in 
the call, we’ll touch on… how does this market relate to that market? In 
1987, the stock market crashed. In ‘89, as we discussed, the wheels fell… 
began to fall off the bus in the commercial real estate business. And, it’s 
interesPng to note that the Wang Tower sold in 1994, which was generally 
looked at as the boGom of the market. The property was 1.3 million square 
feet, and it sold for five hundred twenty‐five thousand dollars.

Brecht Palombo::  Wow.

Ken Hecht:    Now, that was around thirty‐something cents a foot. 
But, what you have to remember was: Wang was going to do a short‐term 
leaseback on the property on a porPon of the building. So, you’d have 
them in a porPon of the building for, say, a year, and aZer which, you’d be 
lugging the whole 1.3 million square feet of empty space to the tune of 
about five million a year of tax and operaPng expenses.



Ken Hecht:    So, it was a real Chinese fire drill to… to lease that 
thing up as quickly as possible, and you really didn’t have to get that much 
rent for it. What you want to do is cover these operaPng expenses and, of 
course, get as much rent as you could.


Ken Hecht:    Also, in that deal, the actual property that sold for five 
hundred twenty‐five thousand dollars came with a parking raPo of one car 
per thousand parking. You had an opPon to buy the remainder of the 
parking—which would get you up to a reasonable office parking raPo—but 
that opPon came with a six‐million‐dollar‐price tag.


Ken Hecht:    So, you really had to think clearly. The buyers who 
bought that were Brian Kelly, Chris Kelly, Dan Doherty and Lou Alvarado; 
they each threw… I think they threw twenty‐five thousand dollars in a head 
for the total of one hundred thousand dollars at the aucPon…


Ken Hecht:    …and resulted in a lot of work on their part. But, I 
think they sold probably three, four years later, and each made probably 
around fiZeen million dollars.

Brecht Palombo::  Geez!

Ken Hecht:    So, it was preGy… preGy nice leverage.

Brecht Palombo::  Yeah, that’s…

Ken Hecht:    But, what happened is, they also had… right now, 
there’s a NaPonal Amusements Theatre up there…

Brecht Palombo::  Yeah.

Ken Hecht:    …so, they had NaPonal Amusements Theatre in their 
pocket. And, on some of the excess land, they actually put the theatre, and 
did a theatre deal.



Ken Hecht:    So, it was a very… it was driven by having this tenant 
in their pocket, type of thing.


Ken Hecht:    So, it’s probably the greatest real estate deal that I’ve 
ever known in New England, in terms of buying at the boGom and selling 
at the top.

Brecht Palombo::  Right. Well, it’s not over yet, so…

Ken Hecht:    No.

Brecht Palombo::  …we’ll see what happens.

Ken Hecht:    That’s right.

Brecht Palombo::  So… so, you bought that at a foreclosure aucPon, just 
to clarify?

Ken Hecht:    No, that was… that was not a foreclosure aucPon; it 
was an aucPon agreed to… Aetna had the debt—the insurance company, 
Aetna…


Ken Hecht:    …and, they were represented by Meredith & Grew, 
and… excuse me, we represented Aetna, and Wang was represented by 
Meredith & Grew. Wang was threatening to give the building back to 
Aetna; Aetna didn’t want it, so they both agreed to hire the respecPve 
brokers, and work together to aucPon this thing. So, it was not a 
foreclosure aucPon; it was a couple guys looking themselves in the 
eyeballs saying, “Why don’t we work together to get rid of this thing?”

Brecht Palombo::  Right, so it’s a consensual sale…

Ken Hecht:    Correct.

Brecht Palombo::  Okay, all right.

Ken Hecht:    That’s right.


Brecht Palombo::  That’s interesPng to note. And, so, tell me a liGle bit… 
let’s move forward. Now it’s 15 years later; how… how is this different, or 
how is this the same as what we went through then?

Ken Hecht:    I think, during that period, there was a lot of 
overbuilding that occurred—in office, parPcularly. And, in this market, we 
don’t have as much overbuilding. The… the economy back then actually 
was… it kept growing. And, our economy, of course we’ve hit 
unemployment rates not seen for a very long Pme—since the early 70s.

Brecht Palombo::  Yeah. Right.

Ken Hecht:    So, there’s a difference there. And, I also think—at 
that Pme—the FDIC and the RTC—they took over assets fairly rapidly…


Ken Hecht:    …and began to cleanse the market.


Ken Hecht:    And, they shut down a lot of banks, including out here 
in New England. And, they grabbed these assets, and they just turned 
around and started selling them. Right now, we have a very different 
approach that the lenders are taking, which is—everyone’s calling it 
different things—kick the can down the road, extend and pretend on the 
loans. And, I think that it’s a strategy that is occurring right now, but I think 
it can only solve so many of the problems.


Ken Hecht:    So, I think what’s going to happen is it’s going to… it’s 
going to delay some of the issues, but it’s not going to solve many of the 
issues.

Brecht Palombo::  Sure.

Ken Hecht:    So, I think that it’s a compressed situaPon; there’s just 
more and more compression building up in the system.

Brecht Palombo::  Right. All right, well I want to… I want to ask you about 
a couple of things; I know you’re a very acPve networker, and you have 
different groups and whatnot, and I… I was wondering if you could just tell 


us a liGle bit about how you build your groups, and how they funcPon, 
who you invite into them. Because, one of the things that I’m hearing from 
some of my members is that they’re looking for deals, and they’re looking 
at the network, and I… it seems like you have a preGy efficient machine. 
Can you talk a liGle bit about what you do?

Ken Hecht:    Sure. Well, first is to build relaPonships over a very 
long period of Pme. So, what you want to do, I think, is… we’re very, very 
good about making sure we have our contact database up‐to‐date; that we 
have different types of product… prospect categorizaPon. So, we have 
around 6,000 folks in our database, but they’re all coded—retail broker, 
owner, banker—whatever type of thing. So, that’s really important, to… to 
build a… an infrastructure, so that when this informaPon you get, you 
can… you can deal with it. And then, on a smaller, more networking basis, 
what I’ve done is—in both Providence and… Providence, Rhode Island and 
Portland, Maine—I’ve pulled together a group of the highest level of 
professionals in those markets that are in… all in the real estate business, 
but in different parts of the real estate business. So, we’ve gone ahead and 
set up a group in each of those markets that has a top aGorney firm, a top 
commercial real estate brokerage firm, top accounPng firm, top mortgage 
banker, and—as it turns out—top aucPoneer, and… and then us, who 
would be capital providers—


Ken Hecht:    —capital providers meaning buyers, or buyers of debt, 
or providers of capital to certain situaPons to make it all work between a 
lender, and perhaps the borrowers, and needs to have a soluPon.


Ken Hecht:    And, I’d say those are the key components, and to 
develop relaPonships within those networking groups so that people feel 
comfortable and confident. And, the people in those groups should be 
people who know what to do with informaPon; certain informaPon needs 
to stay inside those groups, and certain informaPon would be available to 
be used outside of those four walls of that group. And, people have to be 
the kind of people that know which informaPon is confidenPal, and which 
informaPon you can use.

Brecht Palombo::  Yeah, okay. And, how oZen do you meet?

Ken Hecht:    Probably about once every two months…


Brecht Palombo::  Okay.

Ken Hecht:    …in each group.

Brecht Palombo::  Okay. And… and so, it’s a breakfast thing, generally?

Ken Hecht:    Generally, it’s breakfast; we’ve thought about having… 
having it with aZernoon or evening cocktails, etcetera, but everyone’s 
agreed that—let’s make it pure business, and let’s have breakfast, and 
let’s… let’s get work done. And, it’s worked out preGy well, and it can move 
preGy quickly.

Brecht Palombo::  Yeah. Well, I appreciate you le[ng us in on that a liGle 
bit. I had another quesPon here that I want to ask you, which is: what do 
you see as… I know you’re close to a lot of lenders and really close to a lot 
of people in the distressed market place, but what do you see as the 
biggest challenge, really, that’s facing banks today?

Ken Hecht:    Well, they’ve got this situaPon where the… the assets 
that they’ve loaned against, of course, have declined in value to varying 
degrees, and they’ve got issues to deal with, and they’re just really trying 
to solve these issues. So, one of the real trends right now is to really, if… if 
the borrower either has equity, or has a plan, or has a friend with equity, 
they can put more money into the deal, they can rewrite the loan, and 
instead of the loan being in what’s called, “non accrual,” it can be back into 
the good category of loans. So, that’s really their primary objecPve. And, 
somePmes the borrower may not have the equity; they may not have the 
ability to get the equity, and if that’s the case, then they’re probably… the 
banks, in their ﬁrst instance, are going to want to sell the debt. I think that 
that’s their easiest and quickest soluPon—to let someone else deal with 
the problem—and, that’s… if you look at it like as the Navy Seals, Marine 
Corps, then the Army shows up…


Ken Hecht:    …we’re in the Navy Seal part, where that’s really their 
ﬁrst stop of… of potenPal soluPons; if they can’t sell the debt, then I think 
that they are faced with taking back the property…


Ken Hecht:    …and dealing with all the issues that come with that.



Ken Hecht:    In… and, this is all within an environment where 
they’re trying to keep their Per 1 capital raPos up.


Ken Hecht:    So, their Per 1 capital raPo is declining as they accrue 
for these losses, and then, I think that they conPnue to accrue for these 
losses. And the bank, then, can get weaker and weaker on paper, and it 
puts more pressure on them from the government to increase the raPos. 
So, they’re… they’re between a rock and a hard spot.

Brecht Palombo::  Right. Now, I know your primary focus is now 
acquisiPon—and, I want to talk about that in a minute—but, just to stay on 
the challenges facing the banks today, if you were working for lenders, 
what would you be advising them to do, as a general strategy today?

Ken Hecht:    I would be advising them to really hire consultants are 
value ad‐oriented, and who are capital preservaPon‐oriented, and they 
should be thinking about preserving value and enhancing value, but on the 
low‐lying fruit basis. We know that there’s… no bank is going to retrofit an 
enPre 100,000‐foot building and do a complete lease‐up; that would be a 
rare bank.


Ken Hecht:    But, there’s no reason why you wouldn’t get 
construcPon esPmates, make sure your permits are sPll in effect, perhaps 
get a couple of leGers of intent signed with tenants; do things that don’t 
cost much money, but that can have significant return for the lender. If 
there’s three million dollars of upside on some deal aZer some developer 
spends years and millions of dollars in capital, if there’s three million there, 
well the bank—I don’t think—is going to go through everything it has to 
get to that three‐million‐dollar‐“profit.” But, if they can find certain low‐
lying fruit areas by dealing with the right professionals that, perhaps, they 
can get five hundred thousand dollars of value…


Ken Hecht:    …and, increase the value of the exisPng property by 
five hundred thousand dollars. So, it’s really pu[ng out very liGle money, 


but just by really knowing what they’re doing and posiPoning the property 
correctly for sale.

Brecht Palombo::  Right, okay. And, I know I… I saw you speak about this 
recently—in fact, we provided a liGle bit of the data—but, I thought that 
you had a lot of insight, and actually went much deeper on the data than 
just what we provided you. But, in terms of a forecast as you look out, 
what do you see, when?

Ken Hecht:    Well, it really… a lot of this whole game is dependent 
upon when loans expire.


Ken Hecht:    When is a term of a loan? So, if someone did a ten‐
year loan in the year 2000, then that loan is up in the year 2010, which 
would be next year. So, a lot of this whole game is around when do these 
loans expire? And, so, when you look at the data, you’ll ﬁnd that—in the 
near term, right now—there are a lot of bank loans expiring.


Ken Hecht:    And, then as we proceed through the years up unPl 
2017, you’ve got more and more Wall Street CMBS loans expiring. So, right 
now, I see it… if we look at in terms of waves, the ﬁrst wave today is really 
in the commercial banks. And, when do those loans come up? And, 
somePmes there’s… there are problems created well before a loan comes 
up, of course, in many cases, because there’s either vacancy or covenant 
_____ (0:17:40.4) of some sort. But, let’s assume it goes full‐term, to the 
expiraPon of the loan; oZen Pmes there is… somePmes millions of dollars 
of new, fresh equity need to be pumped into deals to get that loan to be 
conforming, or to bring in other kind of debt. So, the Pming is… I’d say, 
between… in the next couple years, I would say that it’s really going to be 
largely a market where we’re all going to be dealing with the commercial 
banks, and then ramping up within that would be the expiraPon and 
availability of commercial mortgage‐backed security loans, which are the… 
the Wall Street loans.


Ken Hecht:    But that’s a… that’s a second wave…



Ken Hecht:    …in my opinion.

Brecht Palombo::  Okay. All right, well, I know you’re busy, but I want to 
get into just one final thing, which is… what kind of deals are you looking 
for out there? What kind of deals are you doing? Tell us… paint that picture 
a liGle bit.

Ken Hecht:    Well, we’re… we’ve really got a terrific partnership put 
together; we’re very capital‐rich at the moment, and we’re very experPse‐
rich. We’ve got three key people within our partnership that have… 
probably between us… probably knocking on the door of 75 to 100 years of 
experience in retail acquisiPon, development management, etcetera, so 
we’re really focused on retail. So, we’re really looking for… whether it’s 
debt on retail, or purchasing the properPes outright, or just bringing fresh 
capital to the table to solve a problem between a borrower and a lender—
anywhere from probably a couple million dollars up to fiZeen million to 
twenty million dollars.


Ken Hecht:    Now, we’ll also look at other product types; we’re very 
entrepreneurial. I think our experPse is… our super experPse is in retail; 
however, we’ve got good experPse in industrial land development, also 
there’s some self‐storage experience in the background.


Ken Hecht:    So there’s a variety of different product types that we 
would be able to act upon, given the right circumstances.

Brecht Palombo::  Okay. So, but your… it sounds like your primary goal is 
two to 20 million retail; you’ll… you’ll buy the debt—or distress notes—
you’ll buy the deed, you’ll buy the actual property, or… also, it sounded like 
you’ll be an equity partner?

Ken Hecht:    Yes, that is correct.

Brecht Palombo::  Okay, and where are you looking? Where are you…

Ken Hecht:    All throughout New England.



Ken Hecht:    All of New England is good. We also like the Albany, 
New York market. One of my partners has experience as far south as 
Philadelphia. I really don’t think that’s really going to be our main… I really 
think it’s going to be New England, and then the Albany, New York area 
would probably be the extremiPes.

Brecht Palombo::  Yeah, okay, great. Well, I know you’re busy; why don’t 
you tell folks how they can contact you, and then we’ll… we’ll let you go.

Ken Hecht:    Well, great. Well, ﬁrst and foremost, my phone 
number at work is 978‐369‐5011, or you can, of course, e‐mail at… e‐mail 
me at Ken@thehechtcompany.com. You can always go to our website at 
www.hechtdev.com –that’s short for Hecht Development, and Hecht is 
spelled H‐E‐C‐H‐T.

Brecht Palombo::  Okay, great. Thanks, Ken, I really appreciate it. I think 
this has been a great call, and you let us behind the curtain on a couple of 
things, so…

Ken Hecht:    That’s great.

Brecht Palombo::  …I really appreciate it.

Ken Hecht:    Well, Brecht, thanks a lot for the opportunity, and I 
hope to hear from you soon, and then whomever else I might be able to 
help.

Brecht Palombo::  Yeah, my pleasure. Okay.

Ken Hecht:    Thanks a lot.

Brecht Palombo::  Don’t hang up.

Ken Hecht:    Bye‐bye.



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