Creativity often is born out of a crisis as thecommercial real estate market illustrates. To help small banks and lending institutions avoid selling troubled loan notes or commercial real estate properties at fire-sale prices, Beverly Hills, Calif.-based StarPoint Properties has launched a new business division, StarPoint Asset Solutions.
The announcement came Monday during the 2010 RECon show in Las Vegas, site of the shopping center industry’s annual convention that this year drew an estimated 30,000 attendees from the U.S. and abroad.
Starpoint Asset Solutions is offering “pre-packaged solutions” to help resolve assets in pre-foreclosure and foreclosure in addition to real estate owned (REO) properties. The company provides turnkey services to help reposition, manage and increase the value of non-performing assets, according to StarPoint principal Evan Farahnik.
The real estate investment and operating company founded in 1995, which owns and manages 6 million sq. ft. of commercial real estate space, including 2 million sq. ft. of retail, is targeting struggling community and regional banks as clients. In terms of the product type, StarPoint Asset Solutions seeks to acquire multifamily, office and retail space.
“We go in and form a joint venture either on a portfolio basis or a single-asset basis, inject capital into that property, and bring our expertise in management and repositioning of that property to the forefront,” explained Farahnik during an interview Tuesday at the Las Vegas Convention Center. “We’ll stabilize the asset two or three years down the line, and then work with the lender to figure out the best strategy going forward.”
StarPoint appears uniquely suited for this role. None of the assets in its portfolio spread across 12 states are Class-A properties. “We’d rather buy something that’s a little beaten up, improve upon it, and add value. Probably 95% of our portfolio includes assets that we’ve repositioned,” said Farahnik.
The value-add approach has paid off handsomely. The annual internal rate of return on assets that StarPoint Properties has owned has been a whopping 70%.
Dealing with troubled assets
Why the need for a pre-packaged solution? Joint ventures can be complex and affect legal and accounting departments, and have tax implications as well. Once the properties are stabilized, the $64,000 question for banks is whether to hold the assets or dispose of them and record the reduction in value on their books. Many of the smaller banks have been reluctant to take those write-downs because doing so might make them insolvent.
It has been in the banks’ best interest to hold onto those assets, emphasizes Farahnik. “This [asset solutions division] really goes to their needs. You have a problem. You’re sitting on all these assets that are troubled. You don’t want to sell them. How can we help satisfy this need for you?”
Indeed, the Federal Deposit Insurance Corp. reported last week that its problem bank list had risen from 702 in the fourth quarter of 2009 to 775 in the first quarter of this year. Banks included on that list are either undercapitalized or weighed down by non-performing loans.
The number of bank failures this year totaled 72 as of Mid-May. Meanwhile, SNL Financial reports that 161 of the nation’s 7,900 banks and savings and loan associations were undercapitalized in the first quarter.
The new division launched by StarPoint will be spearheaded by Aden Kun, who serves as its director of business. “We are providing our institutional partners an alternative to fire-selling notes and real estate in a capital-constrained environment,” emphasized Kun in a press release, “by bringing capital to the table and experience to help stabilize and increase the value of our partner’s assets.”