If counting the number of new programs announced in recent weeks by majorfirms to aid clients with distressed real estate is any indication, commercial real estate owners and investors are facing grim financial challenges.
Cushman & Wakefield, CB Richard Ellis, Jones Lang LaSalle and Grubb & Ellis all formally put titles to their new entities. Cushman & Wakefield's is dubbed “Resolution Group,” CBRE's is the “Restructuring Services Group,” and Jones Lang LaSalle is offering “Receivership Services.”
Grubb & Ellis' program holds the distinction of the longest moniker, the “Services Asset Management Practice.” Though each has different features, the common element is providing services to financial institutions.
“As we looked at where the market is today and where our clients were going to have requirements going forward, it is clearly in this whole area of resolving problem orreal estate, be it the actual asset or a loan or a portfolio of loans,” says Frank Liantonio, executive vice president of Global Capital Markets for Cushman & Wakefield. His group will initially focus on clients that have financed the hard-hit hospitality and retail sectors.
Spencer Levy, senior managing director and point person for CB Richard Ellis' restructuring services group, says CBRE will begin with workouts of residential, land and development. “Certainly if fundamentals continue to weaken, and the capital market conditions stay pretty much shut, it will eventually creep into the core asset types. We are following the trail of distress and we will go with it,” says Levy.
The Federal Deposit Insurance Corp. (FDIC) has selected CB Richard Ellis as its primary adviser to manage, lease and dispose of the real estate assets it holds as a receiver for failed financial institutions. One of its main clients, IndyMac Bank, was taken over by the FDIC in July 2008.
Marcus & Millchap has had a Special Asset Services unit running since 2006. To date, the entity has completed 1,500 special asset assignments and expects that number to exceed 2,000 by the end of the year.
“Distressed properties and portfolios are being well received by private investors so far, and we expect to market a large volume of these properties during the next several months,” says Bernard Haddigan, senior vice president and managing director of retail.
The brokerage firms are broadening their services to capture more revenue at a time when financial distress is hitting the service providers themselves.
In the first three quarters of 2008, sales transactions have fallen by 75% in office, 49% in apartments, 54% in industrial, and 71% in retail versus a year ago, according to New York-based research firm Real Capital Analytics. That doesn't give transactional specialists much to do these days.
“Quite frankly, we didn't really need a lot of restructuring skills over the last two to three years,” says Liantonio of Cushman & Wakefield. “There weren't a lot of defaults.”
The companies aren't divulging revenue projections from the new services. “I couldn't begin to put a number on it in terms of volume of transactions or revenue,” says Liantonio. “We'll know it's a success when we clearly see a meaningful volume of activity.”