More Deals, More Financing, More Competition Is the Outlook for Distressed Investing

By Mark Heschmeyer for CoStar Group
March 2, 2011

If conditions in commercial real estate have indeed hit bottom, then an increased amount of distressed assets could hit the market this year — and values could also begin to tick up. That is the general consensus of industry professionals that CoStar Group interviewed for their outlooks on distressed investing in 2011.

Contributing to this expectation is a change seen in the dynamic among lenders. Up until very recently, banks have been reluctant to foreclose on distressed loans because they would be forced to take huge write downs – i.e. losses on those assets. So a policy regarding under-performing loans on commercial real estate that has come to be called “extend and pretend” has become prevalent in banking for the last three years.

But if as industry players now suggest that values have stabilized, then the uncertainty that bankers have faced on valuations will begin to clear up.

“We think that the distressed CRE market will continue to see increased deal flow in 2011. As the broader economy recovers, banks are more capable of accurately assessing value and realizing a more clearly defined exit from nonperforming loans which bank balance sheets are now able to handle,” said Kevin Brands, managing principal of Holt Lunsford Commercial in Addison, TX. “Thus, the banks see a bid ask spread narrowing and will show progress in concluding their “extend and pretend” strategy and push the distressed assets onto the market.”

By GRACE GAGLIANO | Bradenton.com

photo credit: Bradenton.com

Alison Thomas does everything with a smile — busing tables, wiping counter tops and rolling up utensils in napkins.

Her business partner Mary Beth Hansen is the same way, even when realizing that attempting to cook bananas and chocolate chips in a waffle iron will create quite a mess.

“We feel very fortunate for this opportunity,” says Hansen, who along with Thomas purchased all 10 Peach’s Restaurants and its catering business in December.

The longtime friends say they’ve embarked on their greatest business venture yet: owning and operating one of Manatee County’s most popular breakfast and lunch diners. The two purchased Peach’s Restaurants and Catering Co. out of receivership Dec. 7.

A foreclosure suit was filed against the restaurant chain and catering division Jan. 15, 2010, claiming then owner Michael Luciano owed more than $1 million on a $1.3 million loan. Total assets of Peach’s Management Inc. as of Dec. 20 were $5.5 million, according to court records.

“Yes, we are very fortunate this has worked out for us,” said Thomas, who wouldn’t disclose their purchase price. “It was a good deal.”

Sarasota attorney Morgan Bentley, who represented Peach’s in the foreclosure suit, said receiver Joe Hembree was instrumental in putting the business in good standing for its new owners.

“The receiver came in and it was textbook,” Bentley said. “He started making some money for the business, streamlining some things and the restaurant was able to get back on its feet and, hopefully, last years to come. Everyone loves Peach’s, including me

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