As recent and upcoming events across the country illustrate, holders of small-balance under-performing commercial mortgages appear to be increasingly willing to part with assets at whatever price the market will bear. However, methods of accessing the marketplace remain somewhat bifurcated.
Some sellers looking to dispose of larger portfolios continue to conduct sealed-bid type auctions and negotiated arrangements, typically working with a handful of deep-pocketed buyer groups. Meanwhile, more distressed note-holders are demonstrating a willingness to experiment with online auction formats, in many cases allowing wannabe buyers of all shapes and sizes to compete for even sub-$1 million assets individually.
The latest note sales practitioner partnering with an online real estate auctioneer is the special assets division of nationwide intermediary Marcus & Millichap Real Estate Investment Services. Working with heretofore residential specialist RealtyBid.com, M&M earlier this month launched the CommercialBid.com platform through which the partners will initially offer non-performing, sub-performing and matured commercial mortgages and REOs on behalf of lenders.
The team's first auction is scheduled for the first week of August, with notes totaling some $60 million in principal balance up for grabs. The 23 mostly smallish assets being marketed include some sizable homes and land in addition to apartments, hotels and commercial/retail centers, primarily in Colorado.
Like other platforms marketing small-balance distressed assets, registered bidders can review reams of due diligence information online before submitting initial bids. Would-be buyers need to demonstrate funding capabilities, and provide a $10,000 refundable deposit. Buyers will also typically pay a 5 percent premium for existing structures, and 10 percent for land and land-secured loans.
Meanwhile the active venture of property services giant Jones Lang LaSalle and Real Estate Disposition LLC continues to queue up mostly smaller distressed assets for auction. Late this month the team will endeavor to auction off 20 non-performing and performing commercial notes totaling $75 million in eight states, followed immediately by 30 mostly high-vacancy properties in five states.
Other distressed-asset marketing specialists continue securing more and more small-balance disposition business as well, including Carlton Group, whose Carlton Exchange platform allows bidders to compete online on a "real time" basis until the seller client accepts a bid. Carlton has been particularly active with Florida assets.
But other sellers such as bank regulator/insurer Federal Deposit Insurance Corp. and major conduit loan special servicer LNR Partners continue taking the bulk route.
After much speculation about whether and how LNR would dispose of assets in its expanding special servicing portfolio, the company has reportedly agreed to sell sub-portfolios representing more than $1 billion in outstanding principal (or nearly 270 individual assets) to just four investor teams.
According to the Commercial Real Estate Direct news service, the four buyers have agreed to pay an average of 45 cents on the outstanding balance dollar for a total of 25 asset pools offered through financial advisor Eastdil Secured.
These include some heavyweight teams. Deutsche Bank in partnership with small-balance specialist Bayview Financial will acquire about 70 percent of the assets as measured by principal balance. Opportunistic debt buyer Square Mile Capital reportedly won the bidding on pools with balances totaling about $155 million.
The other buyers are identified as U-Haul International, and a venture of hedge fund Baupost Group and former J.E. Robert Cos. exec Gene McQuown. The agreements are thought to cover all of the assets LNR offered - an unusually successful venture amid a lingering bid-ask gap for distressed debt.
Altogether, some $86.8 billion in securitized commercial mortgages are now asset managed by special servicers representing REMIC trusts, according to the Realpoint CMBS analytics firm.
Federal agency FDIC likewise continues shedding assets of the insolvent financial institutions it absorbs, in many cases selling 40 percent stakes in huge portfolios via its structured offerings. The latest such deal went to distressed debt investor Colony Capital in partnership with Cogsville Group.
The portfolio, in which FDIC will retain a 60 percent stake (and provide cheap financing as well) in order to share in asset management profits the minority partner realizes, includes 1,660-some performing and non-performing commercial mortgages with a combined principal balance of about $1.85 billion. The Colony-led team's winning bid amounted to just under 59 percent of that figure.
Perhaps predictably given the portfolio's size, the Colony group was one of only a half-dozen parties placing formal bids. Barclays Capital handled the offering on the agency's behalf, and has now helped arrange some $8 billion of FDIC structured sales.