“I look at a lot of distressed assets; I look for anything that makes
sense,” he notes. “The bank numbers are X, my numbers are Y and
you find the answer somewhere between X and Y.”
Let’s now look at the other side of distressed market. What do
owners -- sometimes reluctant owners that have taken back proper-
ties – and brokerages that work for landlords have to do to sell or
re-tenant suddenly empty properties?
Chip Hurley, SIOR, CCIM, was a broker working the industrial market in western Michigan when one of his clients, Macatawa
Bank, in the town of Holland, hired him to manage its in-house portfolio of commercial REOs. The bank needed someone with market
experience to winnow down the portfolio.
When he arrived for work back in April 2011, the bank had about
70 properties. Since coming on board, Hurley’s group has averaged
$5 million a month in property sales. Unfortunately, mortgage failures continue and as he looks over his book of properties, the number
is still 70.
The bank has two departments for this type of business, a workout
group and an owned real estate department.
Up until recently, it has been very busy in the workout group as
it had more borrowers to deal with,” Hurley says. “However, their
workload is slowing down. That’s a good sign, because the amount
of real estate we get back is going to be less. From my perspective,
we have turned the corner.”
The problem at a small financial institution such as Macatawa
Bank is that it can’t just unload properties at huge discounts.
“Our spreads are very lean,” Hurley explains. “So, if you take a
big hit on a property that could mean not taking a profit for a quar-
ter. My superiors need to be assured that these properties are sold at
market value. What guides us is appraised value and we are audited
based on those values by the FDIC (Federal Deposit Insurance Corp.)
and the Feds. If we are selling below appraised value, when we have
audits, the Feds will say, ‘you are holding the properties at artificially
high value to prevent write-downs and losses.'”
Macatawa Bank is currently in the process of selling a 5,000
square foot, industrial building in a Holland industrial park.
“The borrower defaulted,” Hurley explains. “We were able to
locate an end-user that was a landscape and maintenance company
and it bought the building for a little above appraised value. It had
excess land for outside storage capabilities. The borrower utilized
SBA financing to guarantee the loans and as a result the down pay-
ment was 10 percent.”
“Values have stabilized in Western Michigan,” Hurley says. “The
banks and lenders in these markets are open for business and actively
Over in the Southeast, John Culbertson, SIOR, CRE, a manag-
ing partner with Cardinal Real Estate Partners LLC, had a different
problem, filling up buildings for landlords in the suddenly slumping
market of Charlotte, N.C. In a local office park, Culbertson’s com-
pany represented seven buildings with different landlords. A majority
of the tenants were either companies in the mortgage industry or were
local offices of national home developers.
“When the downturn hit, we went from being about 86 percent
leased all the way down to 27 percent,” Culbertson exclaims. “It was
a combination of people exercising termination options and compa-
nies shutting down. One of the tenants with 186,000 square feet was
a Barclay’s unit, one of top three subprime mortgage originators. All
that space got handed back to us.”
No panic. Over a two year period from 2009 to 2011, Cardinal
Real Estate was able to re-stabilize the properties, which now have
occupancy of over 80 percent.