What strategies and factors can enable investors to yield maximum returns on non-performing commercial notes, REO, and emerging office trends today?
The second quarter 2013 report from Cassidy Turley shows the office sector gaining ground and showing one of its best performances in three years. The latest statistics show vacancy rates down 10 points, over 15 million feet of space being absorbed, and rents climbing their way back. The outlook from sector experts is overwhelmingly positive with expectations that rents will continue to “soar” and noting some markets are already seeing values hit or exceed pre-recession numbers.
Where to Find the Best Non-Performing REO Right Now
So where are the best opportunities and what factors will stifle or elevate potential yields and returns on non-performing commercial notes and REO?
A new 2013 survey of top commercial real estate executives shows the most domestic confidence in the Southwest and Northeast due to economic and employment growth, though those in the Southeast are also confident and extremely optimistic about their local markets as well.
We’ll invariably stick to the usual line up of strongholds in popular gateway cities, but wider spreads and bargains seem to be easier found in secondary and tertiary markets. Think San Diego, Naples, Chattanooga versus Boston, New York, and Silicon Valley.
A deeper look at the data shows surprising strength in new office space, with healthy demand at the lower end of the market, yet some stumbling in the mid-range.
Despite dramatic improvement in markets U.S. banks are still holding a significant pool of non-performing commercial notes and REOs. At the end of the first quarter of 2013 there was over $24 billion in owner and non-owner occupied non-performing commercial notes considered “non-accrual,” or over three times the dollar amount of actual REOs on hand. Those looking for even deeper discounts on distressed bank assets may also want to take a peek at construction REOs. Out of the 146 U.S. banks which have already reported new figures as of June 2013, 45.7% of the REO pool was made up of construction REO.
Through a variety of strategies – whether it’s acquiring and modifying non-performing commercial notes for cash flow, flipping distressed property notes for fast cash, or taking down REOs to flip or improve and hold – there are great profits to be made in the office sector right now.
What Makes for an Attractive Office Building These Days?
Aside from location and class of office building, there are some other emerging trends which will significantly impact returns and enable savvy investors to dramatically boost returns with the right positioning and holding the most attractive product in the marketplace.
These trends really revolve around how priorities have changed for U.S. based companies, and which factors they value most in new space. Today this includes green design, or at least buildings and units with plenty of natural light that can more easily be finished or retrofitted for increased energy efficiency and staff productivity, proximity to worker housing and affordability of local housing for staff, and flexibility for rapidly changing needs in space for the organization and individual users.
Check out the latest Bank Prospector reports for U.S. banks with the most non-performing commercial loan notes and office REOs.