I’m excited to announce that among a flurry of launches for 2010 we’ll be bringing you the Distressed Property Professional’s Podcast Series (that’s a mouthful!). I’ve been talking with high level professionals engaged in various aspects of distressed property and I’m recording it all so you can hear them here and on iTunes (as well as a whole host of other sites across the web).

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.

On Friday the FDIC issued guidance to banks in the form of a policy statement entitled Prudent Commercial Real Estate Loan Workouts . The stated purpose of the document is

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 –

Of course you lose something considering these 20 slides were an hour and a half presentation with lots of real world examples… but here it is any way the PowerPoint presentation from a 10-15-09 New England CCIM breakfast event where David Phalen and I talked about what’s happening in distressed commercial real estate, how to find opportunities, how to approach banks and more.

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.

Distressedpro.com has released a comprehensive User Guide to accompany its premier bank research product, BankProspector. The 22 page guide goes just beyond the basic functionality of the product and touches on some of what’s behind the numbers. Members are strongly encouraged to make their way through the entire guide so that they’re able to make the most out of the information BankProspector provides. Non-members may peruse the guide to gain a better understanding of the tool.

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.