Buying REO A Disappointment

Recently in a Wall Street Journal article, it was made clear that banks had not done much with their portfolio of real estate owned. Here I will focus more on the commercial real estate segment, however, some of it may ring true for residential real estate. One of the reasons advanced by the journalist is that banks have been waiting for the economy to comeback. As the pace of recovery is much slower than anticipated, banks are now faced with the hard fact that they have to start taking actions with their portfolio of owned property. I am not expecting a flood of new commercial properties coming on the market any time soon, however, I am expecting banks to start making sales decision.

Dealing with asset managers and decision makers at banks is quite an experience for most us. I remember having to do that on the residential side of it and it was not very pleasant. Dealing with asset managers on the commercial side is not simple either. To be successful we need to understand what are banks motivations and the challenges they are facing. Banks want to minimize their losses, as nobody likes to accept that they are not going to get their investment back. They don't have a good idea of what would be a good price at which they should sale. Is the market tomorrow going to turn or is it going to take another year. They are looking at the costs of keeping the property vs. the costs of selling today. They are trying to define guideline and policies in a very difficult market. Finally banks in numerous cases are not dealing with credible buyers or buyers' representative.

Banks are going to start making selling decisions because well they have too. They are realizing that the economy is not coming back as fast as they were expecting, thus the losses are going to be permanent. They are under pressure from regulators to clean up their portfolios and to restructure them. In some cases the properties are continuing to lose tenants making it even more difficult to hold on to it. Finally they are starting to be have a better sense on how to price these properties.

Even if they have to sell their real estate owned it is not going to be easy to have access to these properties. One of the challenges that numerous real estate professional are facing is credibility. I have seen emails from banks that state that they are inundated by calls from brokers etc… who in most cases have no experience but want to try to put a deal together. In addition, in numerous cases brokers and professionals are not taking the steps to make sure those potential buyers and investors are qualified. By quailed I mean that they have experience in buying the type of property they are bidding on. They know how to evaluate the property and make an acceptable offer. Finally, real estate professional need to make sure potential buyers can execute on the offer.

This process is going to continue to be tedious but will pick up some speed in the last quarter of 2010 and beginning of 2011. Broker to be successful have to make sure they understand the transaction and do the work required with potential buyers and investors. When real estate professional don't have the experience they should partner with other professional to help them. Finally doing the proper due diligence and making sure that financial institutions have the intention to sell will make an a difference.