Cravey’s company is doing the leasing on the building,
which at one point saw vacancies drop to 68 percent.
Today it’s at 88 percent.
Back in 2009 and 2010, when the Feds began to
audit every bank, they came to the conclusion fairly
quickly that a lot of real estate loans did not meet
threshold requirements in terms of loan-to-value,
reports Nathan Anderson, SIOR, CCIM, managing
principal with Lee & Associates in Kansas City, Kan.
“When the Feds came in, they realized the margins
were no longer there and told the banks to get rid of
the loans; but when you are telling every bank in the
country the same thing, there was a snowball effect.
Values declined rapidly.”
The quickest way to unload the loans was to sell the
paper. Shrewd investors with cash realized the good
value in these deals and bought the loans for $0.30 to
$0.50 on the dollar.
As the debt market stabilized, around 2011 investors
began buying not just the paper but the real estate
itself. They were able to do that in volume because
the banks would loan the investors the capital
to do so. As a result, the underperforming loans
were moved to the other side of the ledger as
“We had an investment group that acquired from a
bank a $1.5 million asset, which at one time was worth
$3 million,” says Anderson. “The bank financed the
deal with an 85 percent loan-to-value.”
Everyone except the original investor won: the buyer
got the property cheaply and with a good LTV loan,
while the bank moved the loan from non-performing
Currently, Anderson is working a building where
the owner passed away and the real estate went
into receivership. The investment group buying the
property will pay 50 percent of what it was worth
before the recession.
When asked if there were a lot of these kinds of deals
still in the Kansas City market, Anderson responded,
“we are a diversified, second tier market. We don’t
get large swings in value. We still have a few projects
out of whack on the non-performing side, but most of
that is land.”
There are good prospects for brokers in busted
properties or broken debt, but one has to be smart
about the opportunities.
Todd Kamps, SIOR, CCIM, a principal with the
Kwekel Companies in Grand Rapids, Mich., offers
this example. Back in 2005, he sold a 30,000-square-
foot, Grand Rapids office building to a Michigan
investor. At the time, the building was leased, stable
and had been for many years. Then bad things
happened. First, a tenant with a 15,000-square-foot
lease departed, followed by a tenant who had an
Kamps was able to find small tenants to fill some
of the space, but by the time the recession hit,
the banks wouldn’t finance improvements to the
building. Meanwhile, the value of the building
dropped precipitously and eventually went through a
Kamps continued to look for tenants and one
prospective company had a need for about 6,000
square feet. The building was in its target area.
Kamps suggested the company find a partner and buy
the building instead of just leasing, which is what
happened. The building was then re-appraised and
new debt replaced the old. Another tenant took space
and now the building is 100 percent occupied.
Again, think of it as good timing. Although the
property was a B-building, nothing new had been
built in the area for years and the Western Michigan
economy over the last 18 months got stronger.
Expanding companies needed more space.
In the older Ohio manufacturing belt that extends north
from Cincinnati, Norman Khoury, SIOR, CCIM,
a senior vice president for Colliers International
in Cincinnati, Ohio, has sold and leased properties
that were broken, not due of debt overload, but
because of the most basic of all corporate departures:
Fortunately for Khoury, he made the acquaintance
of Stuart Lichter and has successfully concluded a
couple of deals for him. Lichter is the president and
chairman of Industrial Realty Group LLC, a company
that focuses on the adaptive reuse of commercial and
industrial real estate.
“What Lichter looks for are surplus corporate
properties that have been on the market for some
time, or large projects that are functionally obsolete,”
says Khoury. “There is generally not a lot value for
those older, large plants, but Lichter has the capital
and ability to make the land useful again.”
In one of the two deals Khoury brokered for Lichter,
IRG bought an old Delphi automotive brake campus
that included a 500,000-square-foot manufacturing
plant and a 60,000-square-foot office building. Lichter
then tore down the buildings, cleaned, and graded the
property. He then sold it to a truck stop developer.