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Liquidated Assets Offer New Capital Opportunities

Murray, Michael
Banks are giving commercial property investors new opportunities this holiday season by liquidating distressed assets at market-clearing prices.

Jerry Dunn, CEO of A10 Capital, Boise, Idaho, said that in the past four or five months, loan requests increased dramatically because banks across the nation started to liquidate assets.

"Where we focus, we are seeing sellers--primarily banks--finally selling assets at market-clearing prices whereas for the previous several years, distressed sellers--lenders in particular--were kicking the can down the road," Dunn said.

A10 Capital provides financing and consultant services for the workout of troubled loans and real estate assets. Its “value-added” commercial mortgages and note purchase loans range from $500,000 to $10 million with loans held on balance sheet and serviced in-house. Loan types include “mini-perms for lease-up situations, “nearly bankable” loans for situations just outside of bankable structures and note purchase loans for performing and distressed debt purchases.

Dunn said distressed properties are attracting buyers from across the country; A10 Capital recently expanded its offices to central and southern California.

"Capital providers that are willing to go into recapitalization opportunities are getting--we think--very attractive rate-adjusted returns," said Marcus Mollmann, president of Reliquid, a Denver firm that connects capital to buyers of mostly distressed assets.

Michael Singh, executive vice president for Southern California markets at A10 Capital, said that as an unregulated lending business, A10 Capital can structure non-recourse loans on properties that need to be leased up before qualifying for commercial mortgage-backed securities or life insurance financing.

"'Value-add’/‘mini perm' loans fill a giant void in the market caused by the credit crisis and the fact that most banks are reducing their exposure to commercial real estate," Singh noted. 

A10 capital also provides opportunistic investments through a separate private equity fund that targets mezzanine loans, equity investments, and debtor-in-possession financing for companies in financial distress or under Chapter 11 bankruptcy.

Mollmann said one-third of its customers purchase new property while two-thirds of customers look to stabilize properties and refinance with CMBS or life companies.

“We are bringing in either higher leverage debt or gap funding to help [owners] reposition or rehabilitate a property,” Mollmann said. “They can lease it up, get it stabilized and then lease it up with CMBS or a life insurance lender because it is usually short-term money.” 

Dunn said buyers will have more opportunities as bank liquidations likely continue into next year, as many regional and larger banks build up their capital reserves.

“A lot of the larger, regional banks have been reserving to be able to build up reserves and actually start selling assets so that they don’t take hits on the P&L [profit and loss statements],” Dunn said.