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Commercial Real Estate Brokers Ask: “Should I Prospect Owners Or Bank Owned Property?”

August 20th, 2011

The numbers are mind boggling. Hundreds of billions of dollars worth of commercial real estate loans maturing in the next 4 years. About a half a TRILLION dollars to be exact according to the Bloomberg Real Estate Briefing Report. So with all of this debt coming due and no apparent way to refinance it, commercial real estate brokers should be honing in on all that REO that the lenders and special servicers are going to have to get rid of right? Not so fast.

Unlike the RTC days of the early 1990’s, lenders these days are not following the traditional playbook of “don’t pay and we repossess the collateral”. The S& L crisis that spawned the RTC was about $160 billion, a drop in the bucket compared with what we are facing today. Lenders have introduced a few new catch phrases into the market to keep the gravity of the situation a bit lighter…..” pretend, amend and extend” and my particular favorite, “a rolling loan gathers no loss”. So if the lenders are reluctant to foreclose or accept deeds in lieu, where is the opportunity for us commercial real estate brokers and agents?

The answer has never really changed. Every commercial real estate agent should have a structured plan for business development. If you are working on garnering new listings to add to your inventory, fish where the fish are….. talk to owners. Even if the owners you are talking to are in distress and working through issues with the lender, you have an opportunity to provide your valuable services, information and expertise in helping that owner. Obviously, each situation is going to be different, but focusing on the owners of real estate that you want to represent still provides the highest probability for you as a commercial real estate professional to earn a client and a paycheck.

That’s not to say that the lenders should be ignored in this market. There are certainly opportunities to work with lenders in helping them dispose of the REO they do have. The challenge becomes building a relationship with the decision maker and delivering a compelling value proposition that will cause them to list with you. Here are a few things to consider when dealing with the lender who owns foreclosed real estate:

  1. Learn how the lender makes decisions on listing their REO and negotiating the terms of a potential sale. Most lenders do so by committee which has to meet at a set scheduled time and review the details among a number of “bankers”. Unlike dealing directly with the owner who holds the title, invested the equity and went on the hook for the loan, the person or people you are dealing with in the REO department are salaried employees of the lender and are primarily focused on “not screwing up” so that they won’t lose their jobs.
  2. Unlike past recessions, the information available with the click of a mouse is overwhelming. All you have to do is Google search “commercial real estate foreclosures” and you get 3,700,000 hits. The lender is getting a zillion calls, emails and letters a day from eager buyers wanting to buy their REO at bargain prices. Many lenders are taking the attitude of “why should I pay a brokerage commission when I’ve got all these buyers?” Can you blame them? This is one more road block to compelling the lender to list with you. They also may not be inclined to pay you a commission if you represent a buyer or tenant for one of their REO properties.

Knowing these challenges, commercial real estate brokers and agents should structure some “relationship building” with lenders into their business development schedule. Take a banker to lunch or cocktails every now and then. Network just like you would with other prospective sources of future business. But be cautious not to spend too many of your precious business development hours focused on the low probability that you will list or sell tons of REO for lenders. Show your value to owners in the market place and you’ll always be ahead of the game.

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