News
3 REO Trends
November 19, 2012
| Despite recent improvements in the economy and even CRE fundamentals, there’ll still be plenty of REO work to do for much of the rest of this decade. (Tough luck for anyone planning on taking 2015-2020 off.) Today, Faris Lee Investments prez Rick Chichester and managing director Matt Mousavi discuss the future of REO. |
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| 1) Banks vs. CMBS The REO hangover is still with the industry, but its character has changed. The continued increase in loan workouts, along with improved property fundamentals, has decreased CRE loan delinquencies at banks, Matt tells us. The most recent quarterly MBA reports on commercial delinquencies illustrate the overall trend: Delinquency rates have been on a steady decline for some time now, not only for banks, but also life companies and GSEs. On the other hand, the CMBS market still has high delinquencies. |
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| 2) Maturity vs. Monetary The real question facing CRE is loan maturities, especially CMBS, and especially from '14 to '16, Rick says. There’s about $1.7 trillion in CRE debt maturing through 2016; of that, 29% is estimated to be underwater. (We knew buying that personal submarine would pay off.) In terms of workouts, they'll pose a fair number of tough nuts to crack. In the more immediate future, “I expect that special servicers will continue to extend those loans facing maturity default, as opposed to monetary default,” Rick notes. “We’ll see a similar, managed flow of REO/distressed deals in 2013.” |
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| 3) Deals, Deals, Deals Whatever the character of the REO market, there will continue to be opportunities for buyers with the right skill sets. Faris Lee recently repped Orange County-based Thompson National Properties (TNP) in its off-market purchase of an REO asset, Lahaina Gateway, a 137k SF grocery-anchored shopping center in Lahaina, Maui. Rich calls it a rare value-add opportunity in the desirable West Maui market. |
