Real Estate in Recovery: What Can Be Done to Prepare for a Turnaround

I just finished listening to a webinar on the above referenced topic. According to the sponsors, over 1,400 people had registered for the webinar. Obviously the topic is of tremendous interest, not to mention there was no cost to participate.

The unanimous consensus of the panel was that we are not close to a real estate turnaround. I’ve been an advocate that there won’t be a turnaround until we achieve a Gladwell like “Tipping Point”. One gentleman stated that there will not be a real estate turnaround until all parties to a transaction show up voluntarily. By this statement he means the seller is not forced to sell, the buyer is not forced to deploy some equity raised in a blind fund that will expire unless invested, and the lender providing financing is not the existing lender on the property. I thought this statement made a lot of sense. The panel further indicated that until credit markets loosen up, the above aspect of willing participants in a deal cannot occur.

Much was said on the prospect of troubled real estate. Basically, this is like a marriage, where lender and borrower really need to communicate and compromise. Lenders need to recognize that values are not where they were a few years ago and they will need to write down loans. Borrowers will be asked to put additional equity into projects in order to have loans written down and restructured. Lenders will need to realize that borrowers will not put additional equity into a project unless they receive a financial return. As you can imagine, the give and take that is required to accomplish the many workouts that are occurring, further burdened by the role and decision making authority, or lack thereof, of Special Servicers, and multiple tranches of loans, is complicated at its best. And, although I electronically submitted a question about how the panel perceives FDIC Policy Statement FIL-61-2009 – recognizing loan restructures with collateral shortfalls – and its effect on commercial real estate, no one answered this question.

All in all, nothing new to report on the subject of real estate turnarounds, but further confirmation from a panel of experts on everything I’ve been saying and writing about for the last year.

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2 Responses to “Real Estate in Recovery: What Can Be Done to Prepare for a Turnaround”

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