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How to Succeed With
By Steve Bergsman
Distressed property remains a fairly generic term referring to real estate that was originally purchased with debt,
but for one reason or another, payments have stopped and
the borrower has either defaulted on the loan or is in such
a financially precarious position that default is imminent.
It’s true that thousands of commercial properties are in
distress and that there continues to be a massive amount
of real estate in the default pipeline. But more interesting
is the observation that individual markets, and real estate
professionals in those unique metro areas, have responded
differently so as to be able to move those defaulted assets
to new, more stable owners.
In some cities, SIOR professionals are reporting a predominance of receivership situations; others are citing an
increased amount of end-user purchases. There are even
some markets where either owner-finance (good for brokers) or forbearance (bad for brokers) has risen to the fore.
However, before one can arrive at those individual market responses, there are still a few important practices that
need to be initiated just to get buyers and sellers prepared
for the existing and sometimes exasperating transaction
environment, no matter where a proposed deal arises.
The key to accomplishing a transaction these days is
valuing property correctly, not such an easy practice in a
swirling, slippery downturn.
Kenneth Reiff, SIOR, a managing partner with
Cassidy Turley BT Commercial in Sacramento, likens pricing to catching a falling knife, and he takes a
three-prong approach: Find whatever comps (
comparables) are available, but recognize there really aren’t
“You need to be ruthlessly
clear-eyed and clear-headed about the direction
you want to go. ”
many that are useful; figure current asking rents of comparable buildings and extrapolate an appropriate cap (
capitalization) rate; and find competing properties for sale.
“You need to look at what the competing properties are
in order to get your property to a proper basis,” reiterates
George McCutchen, SIOR, CCIM, an industrial special-
ist with Grubb & Ellis/Wilson/Kibler in Columbia, South
Carolina. “There are few comparables out there and many
of them are not good. Appraisers try to pull it together, but
an appraisal won’t be as good as saying, ‘We have this
other building in the market priced at $6 million. In order
to sell yours before that one sells, you need to be better
The last argument is an extremely strong one. So many
commercial properties have been sitting empty and for
sale for more than a year, two years, even more, that when
that singular buyer comes around, you need to snag him or
her because it could be another year before the next buyer
“We sold a 28,000-square-foot warehouse earlier this
year that had been sitting on the market for 18 months,”
says McCutchen. “When someone came along who was
interested, we got the deal done at 60 percent off peak