The Commercial REO Opportunity

Apr 30, 2010 10:23:24 AM

With every challenge there is an opportunity. In 2010, there are opportunities for commercial brokers who are equipped to engage with REO assets. Consider the state of the market:

  • The percentage of loans that are at least 30 days past due in the Commercial Mortgage-Backed Securities (CMBS) market rose higher than 6 percent for the first time ever at the end of 2009, according to mortgage research firm Trepp LLC.
  • CMBS delinquencies have skyrocketed, posting a 502 percent jump over the 1.21 percent delinquency rate from just a year ago, Trepp reports.

That translates to an unpaid balance of CRE-backed bonds of $37.93 billion, according to investment rating agency Realpoint LLC. And that, in itself, is a 440 percent increase since November 2008.

Commercial REO Associations Forming

Analysts predict it will get worse before it gets better. Realpoint estimates the delinquent unpaid CMBS balance will continue to rise, reaching between $50 and $60 billion. Delinquency rates could rise above 8 percent by mid-2010.

What does all this mean? Again, it means opportunities for commercial brokers who engage with REO assets. KW Commercial is taking a leadership position in the commercial REO sector by helping our agents become resources for lenders, bankers and commercial real estate investors who see the opportunities in a down cycle.

Additionally, the opportunity has given rise to organizations like the Commercial REO Brokers Association (CREOBA) and the Commercial National REO Professionals Association (CNRPA).

Launched in 2009, the CREOBA was formed to help banks and loan servicers sell foreclosed commercial properties. CREOBA is working with banks and asset management companies to create “Standards of Service and Best Practices” between the bank REO departments and the brokers selling foreclosed properties.

Also formed in 2009, the CNRPA is a national trade organization for professionals who conduct business in the distressed commercial real estate industry. Members include lawyers, brokers, developers and others who take part in the process. Networking with all these parties is a good idea if you want to navigate this opportunity.

The REO Opportunity

Of course, I’m not endorsing any group. I’m merely illustrating that many in the commercial brokerage world are preparing for the opportunities in 2010 – and so should you. With some predicting more liquidity in the market and a values bottom expected to emerge later this year, the predominant opportunity in commercial real estate in 2010 may very well be REOs. Here are a few proof points:

  • Overdue loans in pools of commercial mortgage-backed securities (CMBS) climbed to 6.49 percent in January, according to a report issued this week by Trepp.
  • As of January 2009, there was $170 billion worth of distressed commercial real estate nationwide, according to Delta Associates.
  • Lennar Corp. closed the biggest loan purchase of 2010 from the Federal Deposit Insurance Corp. Lennar paid $243 million to purchase $3.05 billion worth of loans on 5,500 distressed residential and commercial real estate properties.

Getting Ready to Run

KW Commercial is equipping our commercial brokers to approach this market strategically with training and education. One example is the Distressed Properties and Commercial REO Mastermind webinar through KW Commercial’s intranet on the training page. Another example is a KW Commercial breakout session titled “Commercial REOs & Auctions.” Additionally, we are forming an International Practice Group (IPG) for the REO markets, which is being led and directed by our top commercial REO brokers.

My advice would be to brush up on your education so you can keep pace with the industry. Things are changing quickly. While savvy commercial veterans can draw from past experience from the downturn in the 1980s, today’s market offers new challenges and new solutions. You can count on KW Commercial to keep you up to date with the latest tools to help you navigate commercial real estate.

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