Are banks and other financial institutions playing a game of hide the pea with their troubled commercial real estate properties? Douglas Wilson, a self-described serial developer turned workout specialist and receiver, believes that is indeed the case.

“They don't want to get these assets out. They don't want to foreclose and take a hit on their balance sheet, but at some point there has got to be a resolution,” said Wilson during a panel discussion on foreclosures at the National Association of Real Estate Editors conference in Washington, D.C. in June.

Such gamesmanship by financial institutions, if true, would help explain the dearth of property sales over the past year. Why market your problem assets like a Kmart blue light special? In making his assertion, Wilson is challenging the prevailing conventional wisdom that the anemic level of property sales stems mostly from a disconnect between buyers and sellers.

Getting off the dime

Regardless of the underlying causes, the paralysis that has gripped the property sales market can't last forever, said Wilson, founder and CEO of San Diego-based Douglas Wilson Cos., a provider of financial, legal and real estate services.

“At some point the government is probably going to be nudging people to the finish line — as it did with the RTC (Resolution Trust Corp.) — with some structure that allows for liquidity before the lug nuts start to come off.”

The RTC, established in 1989 and disbanded in 1996, was charged with liquidating the assets, most of them real estate related, of savings and loan associations. The RTC spent about $125 billion in taxpayer money to dispose of those assets.

Out of today's crisis will inevitably come a “wealth change” in commercial real estate, says Wilson. A new wave of investors will replace the old crop, similar to what occurred during the last big real estate downturn in the late 1980s and early 1990s. “There is a huge amount of private capital that has been amassed sitting on the sidelines and which has been gaining velocity over the past 18 months.”

Opportunity knocks

The credit crunch that has caused so much pain ironically is a revenue generator for Wilson. The company offers a range of specialized services to law firms, state and federal courts, corporations, pension funds, REITs, institutions and property owners. For 20 years, it has provided receivership services in over 500 matters involving assets valued at more than $7.5 billion.

Some of the receivership work involves high-profile properties. In October 2008, a Boise judge appointed Douglas Wilson the receiver of Tamarack Resort in Idaho to oversee its operations after the majority owners filed for Chapter 11 bankruptcy protection several months earlier. The four-season mountain resort in central Idaho was closed to the public in March.

In June, Wilson was named receiver for two apartment complexes in Farmington, Mass.: the 281-unit Jefferson at Edgewater Village and the 300-unit Jefferson at Edgewater Terrace.

“There are a lot of unknowns, mystique and misconceptions surrounding a receiver,” Wilson says. “If a lender like Bank of America or Wachovia has a concern about the value of their collateral because their borrower, the developer, no longer has any equity in the deal, then there is no alignment of interests.”

Receivers are crisis managers. They are called in to put together a business plan, assemble a strong team with local expertise and execute the plan. The current bull run for workout specialists, receivers and others in the distressed space began two years ago in South Florida's overbuilt condo market. Last summer retail emerged as the problem child. Now the hotel sector is coming under extreme pressure, particularly luxury hotels, because of double-digit declines in revenue per available room.

Ultimately, the debt markets need to be repaired before any meaningful recovery can occur, says Wilson. “I don't care what bankers may be telling the government, there is no debt available. Cap rates have increased and loan-to-values have gone down. So, if you have a loan rolling, if you can even identify debt, it requires a huge amount of equity in projects.”

In the months ahead, about the only certainty is increased job security for workout specialists.