“It was a blighted, old building right off an interstate interchange,”
says Khoury. “There is quite a lot of distribution near there and
the area was in desperate need of more space for truckers.”
Perhaps the most noteworthy Lichter deal in Ohio involved a
former GM manufacturing facility in the city of Moraine. The
4. 5 million square-foot facility sat vacant for a long time and then
was sold at auction to IRG.
Lichter is in the process of splitting the building in half and selling
1 million square feet of space to the Chinese company, Fuyao
Glass Industry Group Co. Ltd. – the largest Chinese investment
in the state. The remainder of the property will be multi-tenant.
Lichter acquired the GM plant in the heart of the recession, and
Khoury asked how he was able to make the purchase. As Khoury
recalls, Lichter told him: “the equipment was still there and I
used that as collateral for a loan, so initially it wasn’t really a real
estate loan. The banks were able to move it to a different side of
the ledger so the project could happen. As I began leasing, I put a
short-term real estate loan on it. As it leases up, I’ll put additional
THREE KEYS TO SUCCESS IN ADAPTIVE: REUSE, RESOURCE,
VISION AND FINANCIAL ACUMEN
Angelic Real Estate, a New York real estate investment banking
advisory and brokerage firm, has been very active in the market
for broken properties over the past half-decade and its president,
Gabriel Silverstein, SIOR, president of Angelic Real Estate in
New York, N.Y., had some incisive comments to make about
“Early in the recovery, the biggest challenge was the bid/ask
spread, where the holders of debt or REO property, namely
lenders, were seeking substantially more than the properties
were worth,” Silverstein recalls. “While properties were readily
available, they weren’t trading because of the spread.”
That has all changed as the market has aggressively come back
to close the gap.
“Both sides of the equation have tightened up to the point where,
for the most part, we are seeing just about everything that becomes
available ultimately trade,” he says.
THIS DOESN’ T MEAN THINGS ARE EASIER
In the traditional auction process, the potential buyer gets access
to a “data vault,” in short, whatever hard information about the
real estate the seller has, but the lenders that are now sellers often
don’t have this data.
“They may not have the historical financial background or even
copies of everything,” says Silverstein. “This has been the biggest
challenge going through deals.”
Usually in the auction process, the buyer can access information
ahead of time, and after winning an auction, makes a bid with at-risk hard money. “Now you don’t have the traditional period of
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ABOUT THE AUTHOR: STEVE
BERGSMAN is a nationally
recognized financial and real estate
writer. For more than twenty-five
years, he has contributed to a wide
range of magazines, newspapers and
wire services, including the New York
Times, the Wall Street Journal Sunday,
Global Finance, Executive Decision,
and Chief Executive.
time to validate what you assumed,” says Silverstein. “Therefore,
as a buyer you are taking more of a risk because you don’t know
everything and the lender (seller) didn’t give you the data it
should have given you.”
SILVERSTEIN HAS THREE CAUTIONS FOR BUYERS OF
BROKEN PROPERTIES BEING SOLD BY THE FINANCIAL SIDE
OF THE INDUS TRY:
The big institutions that are trying to buy distressed properties
aren’t good at talking to the tenants before they buy. It’s amazing
how, after talking to tenants, you learn there are a lot small things
that aren’t expensive that you can do to right that ship and make
tenants happy. Tenants often feel neglected in busted properties
and the moment someone walks in their door, they will flock
Be cautious of the unknown. Any building that has been in a
distressed situation for many months, probably has suffered from
“under-doing the maintenance” and sometimes that is not easy to
make up. We have seen catastrophic failures in building systems
simply because the systems were neglected for too many years in
the receivership process.
If you have never bought properties from a lender, you will
be surprised at what will end up in a purchase contract. Often
lenders refuse to make the kind of representations and warranties
in a contract the traditional seller makes for the marketplace.
With most lenders, it’s take-it or leave-it.
Ultimately, the biggest problem with distressed property deals,
which are essentially value-add plays, is that the market is flooded
“Pricing is so competitive it is hard to feel that you have gotten a
good deal,” says Silverstein. “The best way to reverse that feeling
when buying from a lender is to take on the risk of a property with
‘hair on it,’ so you can end up getting to the return you’re after.”