I have a few resources I want to point you to that are spread out across this site. Maybe we’ll work to consolidate this into a more complete assemblage in the future.

One question I get constantly, in fact somebody called me in the middle of writing this post, is ‘how will I get to the right people and will they talk to me?’. There’s no magic bullet for this. I’ll refer to my recent post ‘Will REO Asset Managers Talk to You?‘. But my advice is to call high, be credible, and lead with WIIFM. The titles you’re looking for though are often ‘workout’ or ‘special assets’, I’ve even seen ‘Loan Trader’. If you’re using Linkedin for leads you might want to read my post about getting started with Linkedin for prospecting and how to get more leads with Linkedin.

I’ve covered some topics like how to know when banks won’t sell, a primer on buying non performing notes, why you should be expecting more deal flow soon. I’ve also had guests who have talked about the number 1 indicator that a bank is selling non performing assets, and how to use the bank data to estimate potential NPN deal volume.

If you trawl this site you’ll learn about how loss share agreements impact distressed asset deal flow with banks that have them and how the big boys handle their loan sales process. You’ll probably want to know if the bank is even healthy enough to sell or if they’re more likely just another ‘can kicker’.

Way back when, I had a chat with a leader in distressed commercial real estate in New England who talked about what amounts to a distressed assets mastermind group, I even chatted with an expert in putting together funds about the 6 components to a successful distressed assets fund.

I hope some of this is helpful and gives you enough to chew on if you’re looking for more information. The experts I’ve had the pleasure of interviewing have provided some invaluable insight in the business and I hope you learn from them.

Oh, and by the way I have a free email mini course where I tell you everything you need to know over the next two weeks about how to use free public bank data to find and qualify banks with REO and non performing loans.

Know for sure if the bank will can sell distressed assets.

Judging from the number of questions I get from members and prospective members though it became clear that we could help you out a little more with some technology. Today we’re releasing some updates including capital ratio flags. Since there’s a slight possibility that you haven’t read everything I’ve written here I’ll go ahead and recap this bit for you.

Banks which are not adequately capitalized cannot sell distressed assets at discounted rates and probably not even at market rates. The reason they can’t do this is because they could be putting their balance sheet in jeopardy. Under capitalized banks fail and and get closed by the FDIC.

The way this works is as follows. Banks have assets on their books at certain values. Those values are determined by a couple of things but mostly their determined by recent appraisals. Due to the dearth of comps and for a host of other reasons the appraised values that banks are clinging to have tended to be higher than what the market is actually willing to pay (unless of course you’re trying to buy a home… in which case it seems to go the other way, go figure…) over the last few years. This is good for the balance sheet bad for transacting.

Banks have to maintain certain minimum levels of capital in order to continue to operate. Banks are regulated as to the amount of risk that they have versus the assets and capital they hold. The easiest thing for a struggling bank to do if it wants to stay in business and has a lot of late and non performing loans or REO and not a lot of capital is NOTHING. If they look busy but don’t sell anything over time they hope that the flood of trouble stops while they slowly write down the value of their problem loans. In the mean time they’ll market assets and look like sellers but they’re not going to let go and take the balance sheet hit on something that could put them under.

To make this whole thing real simple we’ve taken all the thinking out of it. We’ve setup flags around the generally accepted minimum capital requirements.

Banks that have 105% of the minimum capital ratios are not flagged meaning “charge ahead” they can probably sell (though there are other indicators to look at).

Ratios between 105% and 85% of the required minimums are flagged yellow. A yellow flag means that there are some capital issues if there are other bad indicators then they might be approaching a place where they cannot sell.

Finally there’s the red flag. Banks with less than 85% of the required CAR are flagged as red.

Banks with a lot of red and yellow aren’t going to be sellers and are probably on their way out, as is proven on a weekly basis.

As you can see above First Southern National, which was just closed, wasn’t all red it was red and yellow. Beware of spending any time with these banks. You’d do better to wait and see who buys them when they fail… Then you can work something out under the loss sharing agreement.

Although the colateral for the note is the same the asset you’d buy in a more common real estate transaction the deals are sourced differently, sources for inventory are fewer and further between and are qualified differently, the approach and the transaction are more sophisticated, and the exits options are completely different from “fee simple” transactions.

Investing in notes, however, can be hugely profitable and in some respects a lot less work than “traditional real estate investing”.

More of our subscribers lately are non performing note investors or note brokers and I’ve been fortunate to have a lot of conversations with many of you who are trying to figure out a business plan and perhaps more importantly who are trying to find deals (business plan doesn’t matter much if you don’t have product). I’ve heard a lot about the challenges in getting started and where I’m not a note investor myself I decided I should find some experts who can speak on the topic.

Over the last few months I’ve been looking for the aforementioned expert but the big problem with a lot of what I found out there is that it didn’t smell like the real thing… a lot of talk, no transactions that I could see … big hat, no cattle. I’m pleased to say that about a month ago I found Doug Grimm from Northern Value Group. Doug and I have spoken a few times but I knew within the first few minutes of chatting about the bank data, qualifying target banks etc., that he knew what he was talking about.

In this episode I talk with Doug Grimm about his note buying business. Over the past couple of years Doug has been involved in more than $60MM in note purchases. Doug Grimm and Chris Gleize together manage Northern Value Group and also run Note Buying Mastery, a training company. Their main focus is investing in residential notes.

This episode is meant as a primer or a “Note Buying 101″ if you like.

In this podcast Doug and I discuss:

• What does it mean to “buy a note”.
• The 3 main differences between buying notes vs traditional distressed real estate investing.
• Note buying business plans and exit strategies – including a brand new FHA program that provides a fast exit.
• How and why to approach regional and community banks for non performing notes
• How they decide which banks to target
• Their top-down approach to prospecting banks, who to ask for, what to say

I’m talking with Chris and Doug after this podcast about conducting a more detailed interview and hopefully a webinar. If that’s something you’d like to hear about when it happens put your email in the form below and we’ll let you know.

In this episode John (a former Wall St banker and mortgage backed securities trader and investor) talks with me about the FDIC Loss Sharing Agreements and how these agreements will affect the flow and sale of distressed assets to the market. We discuss:

• The ins-and-outs of what the loss share agreements say
• How loss sharing agreements will affect the flow of distressed assets to the market
• Some tips on how to satisfy the FDIC and get assets covered under Loss Share’s sold

This episode runs for about 20 minutes.

As I mentioned in a previous post there are new reporting requirements that demand that banks with loss sharing agreements report in detail on the assets covered. We’re anticipating having all of that ‘loss share’ data available in BankProspector within the next 7-10 days.

If you’re an expert in your field we’d like to hear from you. If you have opinions or information about loss sharing agreements in particular please leave a comment below. If you work with banks in some capacity servicing, selling, or buying their distressed assets and you feel you have something to offer the distressed real estate community contact us about being featured on our site.

Thousands of distressed property professionals and bankers visit this site every month.

For this series I interviewed John McCaffrey. John knows so much about the business that we actually talked for about an hour and forty minutes and probably could have talked a lot longer. John works with Auction.com in, 2010 they did more than $2 billion dollars and 42,000 units in distressed asset transactions. John is a 3rd generation mortgage banker who has worked on all sides of the mortgage business you can find his

Rather than subject you to a 1:40 long recording I broke it up into 3 chapters’ or sections, they are:

1. The Loan Sales Process: John walks us through exactly what he and his firm do to package, present, market, and close loan sales for, primarily, bank sellers.
2. FDIC Loss Share Agreements: How they impact distressed asset sales at a bank, what it means for this business going forward, and some tips on what you need to do when you’re working with banks that have assets covered under loss share agreements.
3. Loan Loss Provisions: John walks us through this important FDIC call report item tells us what it is, why we care, and how we can use loan loss reserve figures to form a simple ‘back of the envelope’ calculation to determine potential deal volume at with any bank.

I’m lining up other experts to talk about the different aspects of the distressed real estate business. If you think you have something to offer, if you have some success behind you, and if you know what you’re talking about I’d love to hear from you (especially if you’re a paying member! though you don’t have to be). In exchange for your time and sharing your expertise you’ll expose your business and brand to hundreds and often thousands of readers and subscribers in a very, very narrow niche.

LinkedIn is the #1 social network for business professionals. If you’re not using it to find and make connections then you are missing out on a huge resource. Joining LinkedIn is free. Sure they offer premium services but until you’re really digging in it probably isn’t necessary to spend the money. Although, if you’ve though about it and you’re serious about moving your business ahead and leveraging social media to get there then you should probably look at the the 50% off end-of-year special that they’re promoting (I got this link in my email I can’t guarantee it’s going to work for you).

First things first, round out your profile. When someone contacts me or when I get a lead the very first thing I do is check them out. Before I return an email or make a call, if I haven’t heard of you I’m going to look and see what you’re doing online.

Gmail Interlude

First string on this front for me is rapportive. But wait let me back up a bit. I use gmail for all my of my email accounts, no not my gmail.com address, I run all of my business addresses through gmail. I do this for a couple of reasons.

1. The SPAM filter is unbelievable, truly fantastic, almost no SPAM makes it to my inbox and this saves me tons of time
2. Add-Ons, filters and labels, search and archive.
3. Portability. I don’t have to sync up a bunch of accounts I can access it from anywhere, it works great on my phone.

I could really go on but I’ll stop here and if I hear requests I’ll cover some power prospecting/networking strategies and tactics that involve the gmail interface. One final word, setting up gmail to take over any private or business account is easy, don’t be intimidated by the technology.

Rapportive.com shows me a lot about you right in my email.

We get a fairly high volume of inquiries via the web for this site and in my auction business we also have a huge flow property inquiries, each one of these is attached to a unique email address and most emails are attached to some social media accounts. In our world the most important social media site is LinkedIn. Rapportive instantly shows me whether or not you’re in LinkedIn, gives me a link to your profile, and gives me a button to initiate a connection request. I check every profile that lands in my inbox so I can see:

• Where you are on the face of the planet
• What your business profile is, what type of customers or clients do you have, etc.
• A link to your website, you should have a website and you should have the link on your profile page.
• What you’ve been talking about online.
• Who (what types of people) you’re connected to

Now you could look at this list and start to dismiss pieces of it but you’d be making a mistake. If you’re looking to do business with people and you use email you’re being investigated online, period. Today there are 85 million LinkedIn members, it matters. If this seems like a lot so far, and I suppose to some it is, then I suggest you take bite size chunks and 3 definite steps. If this is old news to you, that’s probably good news.

Step #1

Complete your profile. As I started to say above before I got sidetracked you should complete your profile, for a number of reasons. A completely blank LinkedIn profile smells like neglect. It could be that you are so busy doing deals that you’ve never had time to add anything to your account but what it looks like is that you’re not doing any business. It isn’t fair, it probably isn’t true, but that’s what it looks like.

The second reason you should complete your profile is to improve your own personal Google results. Yes, even if your prospect or potential client isn’t in LinkedIn they do ‘google’ and they will probably google you before they do business with you. That’s the world we live in.

Have you googled yourself lately? How did it look? Are you happy with the results? Go google yourself from a fresh browser or even better from a Chrome Incognito window so that your results aren’t skewed by your browser history. When I google myself the first thing that comes up is a domain I registered that’s my name but the very next thing is LinkedIn. So if we were going to do business together you might take a quick look at my site but most of the time you’re going to go right to LinkedIn. The stats I track on my site and LinkedIn prove that out.

The third reason is that people will be more open to connecting with you if you’re telling them a bit about yourself. Nobody wants to receive an invitation or email from a practically anonymous ‘other’, it raises all kinds of questions ‘is this SPAM?’ ‘what could this person want?’, ‘are they really in business?’ Just eliminate all this by having a complete profile that is reflective of who you are, what you do, and who you work with.

Step #2

Join some groups. The major purpose in social media is connecting. Groups are just what you think they are. They are a bunch of people talking about a subject. Yes they can get SPAMMY and yes there are trolls out there but there is another reason to to join a group, access. Joining groups gives you access to members. Members of a group agree to be contacted (usually) by other members, the search results that you can see and the number of people you can contact after joining some groups goes up dramatically. The image below shows the option box that most people who join groups leave checked.

Most members leave this box checked.

Step #3

Invite everyone you know. You must have lists. If you’ve been in business for any length of time I’m sure you have lists. You might have:

• Trade show spreadsheets
• Online client inquiries
• Outlook/Entourage/Address Book lists
• Gmail contacts

Whatever you’ve got, I’m sure you have some lists of people and most importantly their email addresses. Hopefully these people are in your industry, even if they’re not but you have reason to believe that you’ve had some business contact/relationship with them even at the smallest level, invite them. Gather up these lists and head over to LinkedIn. In the top right corner you’ll see Add Connections, click it. Now you see a couple of forms. You can go through the steps they have here or you can be really efficient and use the “Import your desktop email contacts” link at the bottom of the blue box on the right.

Just do this. I think there is a tendency to hem and haw about who to add or not or how the invite will be taken. I’ve never ever had anyone say they were offended by an invite, ever. If you upload a list, depending on how fresh it is I would wager that about 1/3 of the people you invite will accept.

I hope this is a decent primer, it is meant for beginners. If members or might be members have a further interest in hearing about some more ‘advanced’ tactics ar strategies, let me know in the comments.

If you do these 3 steps above, the results and personal details that you’ll have access to in BankProspector via the LinkedIn panel will go up dramatically.

Are you looking to do more distressed asset business? Want to source commercial, multifamily, construction, or residential non-performing loan and REO deals directly from over 7,000 lenders? You need a professional grade research and prospecting tool, you need BankProspector.

Opportunities and Challenges in Commercial Property Receivership

Greg Trotter

Greg Trotter is President of Commercial Building Consultants based in Orlando Florida. He has been involved in commercial property receivership and distressed asset management for more than 10 years. He came to this career after more than 20 years in construction and has spent most of his career in commercial property preservation, distressed asset management, and asset preservation. Greg’s been involved in more than $200 Million in successful commercial property workouts with a focus on multifamily assets.

In our interview we talk about:

• 1980-82, 1990s, and now what’s different and the same?
• The mechanics of successful receivership assignments
• Working with banks and bankers
• Challenges and opportunities in commercial property and receivership

6 Critical Components for a Successful Distressed Assets Funds

Warren Kirshenbaum

Warren has been the lead attorney in assembling and structuring distressed assets funds, and creating the equity raise strategies for 4 separate distressed asset investment funds in 2009.  The funds have ranged in capital size from $1.5 million to $10 million.  Fully leveraged, the fund size that Warren has been working on range from $3 million to $35 million.   The funds have ranged from those seeking single family homes to 3-6 family homes and to commercial properties, both retail, industrial, flex, and multifamily.

Warren has a law degree from New England Law and a Masters in corporate law from NYU.  He practiced in New York both in-house for a Wall Street investment house and in private practice for a law firm.  He was the General Counsel to a large real estate developer, manager, and builder based in Texas, and now uses his corporate/securities background and real estate/tax background to great benefit in the structuring of distressed assets funds.

In our interview we talk about:

• 6 Key Components to Assembling a Successful Distressed Assets Fund
• Raising Money For a Distressed Assets Fund
• The biggest mistake would-be investors make in starting a fund

How to Setup and Run Distressed Asset Mastermind Groups

Ken Hecht

Ken has been in the commercial real estate business since 1986. Ken’s recent experience has been as founder and President of The Hecht Company, a Retail Brokerage and Development firm founded in August of 2001. Currently the firm is involved in over 4 million square feet of Retail Development.

Prior to founding The Hecht Company and then Hecht Development in 2006 , Ken rose to SVP and Partner at CB Richard Ellis Whittier Partners, the largest commercial real estate services firm in the world where he founded the Retail Advisory Group, selling and/or leasing over $500,000,000 worth of commercial real estate including over $100,000,000 of retail assets.  He has also completed a number of complex joint ventures, 1031 tax-deferred exchanges, long term ground leases, land sales for hotel development and leasehold interest sales.

In our interview we talk about:

• Ken’s involvement as the broker on the famous Wang Towers deal in the 1990s and the details behind it
• The differences between the last crash and this (forthcoming) one
• How he sets up and runs successful distressed asset networking (aka Mastermind) groups
• The commercial real estate challenge facing banks today and what they can do about it
• Forecast for the commercial real estate market

We’ll be releasing these podcasts and transcripts each week this month.

Join the conversation. Are you a proven professional in the distressed property space? We want to talk to you. We’re looking to talk to note sales and consulting professionals, note buyers, private equity investors, asset managers, special servicers, bankers, workout officers and others. Click here to contact us if you have something to contribute.

It is intended to promote supervisory consistency, enhance the transparency of CRE workout transactions, and ensure that supervisory policies and actions do not inadvertently curtail the availability of credit to sound borrowers.

But it goes on to talk about accounting principles in dealing with distressed commercial real estate loans in determining their reporting status – accural vs a non-accrual loan. If you’re working with banks’ distressed commercial real estate loans then it is fair to say this is a must read. This document should give you insight into what bank’s need to take into consideration knowing that reporting is tightening up. I’m going to try to hit the highlights for you in this post since this is a government produced document and I don’t want my readers falling asleep.

This is the first of a two-part post How to Workout Distressed Commercial Real Estate Loans (and Be Good with the FDIC).

I’ll break it down with excerpts section by section:

III.  Loan Workout Arrangements

Loan workout arrangements need to be designed to help ensure that the institution maximizes its recovery potential. Further, renewed or restructured loans to borrowers who have the ability to repay their debts under reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance.

So in short, if the CRE borrower and guarantors can write the check and you’d rather extend the loan, restructure the loan or what have you , the fact that the property is worth less than is owed is not the determining factor for whether or not the bank has to action on a CRE loan in technical default (default for reasons other than non-payment). It also say that bank’s must do whatever will allow them to maximize capital recovery (essentially).

A.  Analyzing Repayment Capacity of the Borrower

Basically look at the whole borrower and the guarantors. If they have the ability to continue to pay and their future ability to pay is defensible then carry on.

B.  Evaluating Guarantees

A good guarantor with a solid contract means you can keep reporting the loan is in good standing.

C.  Assessing Collateral Values

A new appraisal may not be necessary in instances where an internal evaluation by the institution appropriately updates the original appraisal assumptions to reflect current market conditions and provides an estimate of the collateral’s fair value for impairment analysis.

I think this is important because it seems like it’s realistic appraisals that determine liquidation potential. If you’re in the transaction business this is important for obvious reasons.

The documentation on the collateral’s market value should demonstrate a full understanding of the property’s current “as is” condition (considering the property’s highest and best use) and other relevant risk factors affecting value.

If you were thinking you were making condos but there is no condo market so now you have apartments you’ve got to say it. This is a big one because with some $90+ billion in bad construction debt out there there are a lot of projects that are not going to take the shape that was originally envisioned for them.

…if the institution intends to work with the borrower to get a project to stabilized occupancy, then the institution can consider the “as stabilized” market value in its collateral assessment for credit risk grading

Huh? Are projected stabilized values anything like reality today? If you’re a borrower this is great if you’re a bank you’re probably just delaying your troubles. This looks like a big get-out-of-jail-free card for a well funded borrower. I think it shows that if you can put together a real plan that looks good on paper you can buy yourself a lot of time.

Examiners generally are not expected to challenge the underlying valuation assumptions, including discount rates and capitalization rates, used in appraisals or evaluations when these assumptions differ only in a limited way from norms that would generally be associated with the collateral under review.

Make it believable and you get a pass.

This concludes part one. In part two we’ll go through

• Renewals and Restructuring of Maturing Loans
• Classification of Troubled CRE Loans Dependent on the Sale of Collateral for Repayment
• Implications for Interest Accrual
• Allowance for Loan and Lease Losses (ALLL)

Thanks for reading.

Are you a commercial real estate or workout professional? Weigh in on this topic in the comments below.

Read the document without downloading here:

Commercial Loan Workouts _ FDIC-Prudent CRE Loan Workouts –

We covered quite a bit of foreclosure data including commercial and construction foreclosure figures. We also covered who to contact at a bank and what to say when you call. Finally we looked at the distressed assets at the banks in New England specifically to bring it all home for this particular crowd.

Under development now is a Basic Training manual that will assist distressed real estate professionals with formulating and executing a bank prospecting and relationship building strategy. BankProspector helps real estate investors, brokers, funds, developers, and appraisers to identify real estate opportunities with more than 8,000 banks nation wide.

BankProspector is the only product on the web designed to help real estate professionals find banks with distressed assets, REO, nonaccrual loans and nonperforming notes for sale.