Business Management Executive Q&A
Jan 9, 2008
As South Florida begins to pick up the pieces of the subprime meltdown, many of the largest players are coming back to the market, looking at bargains and buying foreclosed deals. CPN Associate Editor Amanda Marsh spoke with Michael Brown (pictured), executive director of Meridian Capital Group’s Florida office, about these opportunities and how investors are financing these purchases.
CPN : The largest players are getting back into the market in Florida. At what point did they stop buying, and why?
Brown: Many stopped or slowed in buying during 2006, as the smaller investors and syndicators got more aggressive and priced them out, as equity and mezzanine financing became more available to smaller players than their traditional partners/borrowers.
CPN : What sort of opportunities are available for these buyers, and where?
Brown:: Statewide; there is a lot of opportunity right now. Portfolios of properties held by people who purchased the properties in 2006 and 2007 are often moving for a loss. Investors with their own management companies also have the ability to come to the rescue on many properties that were purchased for a quick flip or conversion, and are now owner-managed by people that had no intention of holding or managing. These properties can be purchased, or portions of the equity can be purchased with favorable terms. We are just starting to see this occurring. Bank owned properties are also moving. We are seeing buyers aggressively negotiate with banks to purchase properties or try to purchase bad loans. We anticipate seeing more of this activity as default rates and real estate-owner portfolios seem to be growing. We are also seeing plenty of value-added business, as buyers seek to raise rents with rehab dollars.
CPN : How are the buyers financing these deals?
Brown:: The agencies (Fannie & Freddie) are still very much in the market and are offering great terms and some newer loan programs. For commercial properties, there is still some CMBS business going on, and we are seeing a few of the conduits offering spreads far below the competition for finite amounts of time. The loans less than $20 million are often going to (local and national) banks, as well as some international sources. Life insurance companies still have a fair share of the market, and have benefited from the pullout of many CMBS lenders from the market. There are still ample resources available for buyers to get aggressive financing. However, now more than ever, it’s “who you know.” My company has benefited from the disruption of many long terms relationships via lenders canceling loans for long time borrowers, or re-trading loan terms last minute. Loyalties are disrupted, and most borrowers are looking for new relationships.
CPN : What should buyers be watching out for going into 2008?
Brown:: A few things:
1. The international market, because many foreigners are coming to Florida now, bargain shopping with a more valuable currency. We are seeing European, South American and Canadian investors tying up deals now.
2. Condo de-conversions, because many developers of fractured condo properties are purchasing back the sold units, when it makes sense, in order to make their properties more financeable and marketable as rentals.
3. CMBS, because Wall Street is too smart to sit out of this market. They will find new efficiencies and will be back quickly with a very competitive product.
4. Bank consolidation, because with low stock prices, we see the potential for banks to consolidate, which results in less competition in the market.
5. Retail with weak sales numbers, because the demand for well-located properties will be significantly stronger than secondary locations.
As South Florida begins to pick up the pieces of the subprime meltdown, many of the largest players are coming back to the market, looking at bargains and buying foreclosed deals. CPN Associate Editor Amanda Marsh spoke with Michael Brown (pictured), executive director of Meridian Capital Group’s Florida office, about these opportunities and how investors are financing these purchases. CPN : The largest players are getting back into the market in Florida. At what point did they stop buying, and why?
Brown: Many stopped or slowed in buying during 2006, as the smaller investors and syndicators got more aggressive and priced them out, as equity and mezzanine financing became more available to smaller players than their traditional partners/borrowers.
CPN : What sort of opportunities are available for these buyers, and where?
Brown:: Statewide; there is a lot of opportunity right now. Portfolios of properties held by people who purchased the properties in 2006 and 2007 are often moving for a loss. Investors with their own management companies also have the ability to come to the rescue on many properties that were purchased for a quick flip or conversion, and are now owner-managed by people that had no intention of holding or managing. These properties can be purchased, or portions of the equity can be purchased with favorable terms. We are just starting to see this occurring. Bank owned properties are also moving. We are seeing buyers aggressively negotiate with banks to purchase properties or try to purchase bad loans. We anticipate seeing more of this activity as default rates and real estate-owner portfolios seem to be growing. We are also seeing plenty of value-added business, as buyers seek to raise rents with rehab dollars.
CPN : How are the buyers financing these deals?
Brown:: The agencies (Fannie & Freddie) are still very much in the market and are offering great terms and some newer loan programs. For commercial properties, there is still some CMBS business going on, and we are seeing a few of the conduits offering spreads far below the competition for finite amounts of time. The loans less than $20 million are often going to (local and national) banks, as well as some international sources. Life insurance companies still have a fair share of the market, and have benefited from the pullout of many CMBS lenders from the market. There are still ample resources available for buyers to get aggressive financing. However, now more than ever, it’s “who you know.” My company has benefited from the disruption of many long terms relationships via lenders canceling loans for long time borrowers, or re-trading loan terms last minute. Loyalties are disrupted, and most borrowers are looking for new relationships.
CPN : What should buyers be watching out for going into 2008?
Brown:: A few things:
1. The international market, because many foreigners are coming to Florida now, bargain shopping with a more valuable currency. We are seeing European, South American and Canadian investors tying up deals now.
2. Condo de-conversions, because many developers of fractured condo properties are purchasing back the sold units, when it makes sense, in order to make their properties more financeable and marketable as rentals.
3. CMBS, because Wall Street is too smart to sit out of this market. They will find new efficiencies and will be back quickly with a very competitive product.
4. Bank consolidation, because with low stock prices, we see the potential for banks to consolidate, which results in less competition in the market.
5. Retail with weak sales numbers, because the demand for well-located properties will be significantly stronger than secondary locations.
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