The Official Blog of Matthew L. Adler

The Official Blog of Matthew L. Adler

Posts Tagged ‘Commercial Real Estate’

Reasons for Optimism

Thursday, April 15th, 2010

I am back from my writing sabbatical. It is amazing when you get out of the pattern of regularly updating a blog how quickly months go by. Now that is has been three months since my last post, a fair question is, “What has changed?” From my perspective not a whole lot! Employment is creeping up and healthcare reform has passed but things don’t feel significantly different. I still believe the worst of the economic downturn is behind us, but the recovery will remain slow. Despite slow growth, I am seeing some signs of life in the commercial real estate market.

Our big news in the company is we are under contract with the first acquisition of 2010. I cannot say much about it other than it falls squarely within our mantra of working with not a distressed property, but rather a motivated seller. We plan to close some time this quarter.

The acquisition market has increased; we are seeing more deals then last year but also more competition. On multi-family and most institutional quality assets, cap-rates have reportedly compressed 100-150 basis points. I am not sure if that is a sign of the recovery but it certainly is a sign that there is more competition on the buy side and money is coming off the sidelines. I believe the combination of an improved lending environment and a renewed sense of optimism has fueled increased buyer demand. To date this has not been met with a significant increase in supply by sellers. Consequently, the demand to buy is resulting in price increase.

Even with the inefficiencies in the market, Adler Group is optimistic that we will be active buyers for the remainder of 2010. And, as mentioned in previous blogs, our sector has far less competition than institutional and multi-family assets. To succeed in our product type one must be a strong operator. Just like the asset we currently have under contract, we believe we can buy performing assets with cash flow and an attractive risk adjusted return. Stay tuned for more good news on the investment front.

Some Thoughts on 2010 — Part 1

Tuesday, December 22nd, 2009

2010 is almost here! I pride myself on being an optimist and always looking for the good in life.  Therefore, I am heading into the new year with hope that even though 2009 was a difficult year for everyone, I think 2010 will be an improvement.  I am not suggesting that the economy will come out of this crisis overnight, but I do think that we have bottomed and that in 2010 will see the start of a recovery.

This is the first in a series on what to expect in 2010.  The post below was written by Joel Levy. Joel is the Vice Chairman and former President of the Adler Group.  He has worked with my family for over 25 years and has been a significant mentor to me.  Having managed dozens of commercial real estate acquisitions and dispositions over three decades, Joel is uniquely qualified to offer thoughts for the new year. I intend on posting my thoughts and other guest posts over the coming weeks.

Some Thoughts on 2010 — Part 1

By Joel Levy

There are no lack of issues to discuss about commercial real estate and countless opinions as what to expect in 2010. In Matthew’s previous blogs, there has been a lot written about “Distress”, whether it be distressed assets, debt, owners, lenders, etc. etc. I however want to focus on one of the areas Adler Group intends to emphasize in the year ahead.

In 2009 we attempted to acquire properties from certain sellers who we did not believe were distressed, but who appeared ready to shed assets for various strategic reasons. It could have been a need to raise cash, a desire to sell an asset not core to their business or a desire to exit from a particular market. Let me report that as of now we have not been successful in this pursuit. Why you ask? It is really simple, an insurmountable spread between bid and ask. However, we now think that a narrowing of this spread is on the horizon. Are we being too optimistic or naïve? I hope not.

We have heard many opinions from various real estate professionals, and based on their and our own opinions we look to the new year with some optimism as to the narrowing of the pricing differential. Some of the issues are as follows:

  1. There is a very large amount of capital that has been on the sidelines or is currently being raised. We are believe that buyers will lower their return expectations and be more active acquirers.
  2. All signs are pointing to their being more available debt at better rates and slightly increased loan to value ratios.
  3. Sellers will be under more pressure to dispose of assets to fulfill their strategic goals as noted above. Many of the assets have recently been marked to market, making it easier to justify disposing of assets at lower prices.
  4. Although gradual in its impact, economic signs are improving and there will be an ability to underwrite a bit more positively.

While we intend to continue to pursue this path, we will also be in a pack of investors looking at distressed assets and debt.

Stay tuned for another interesting ride in the year ahead and more posts about the new year.

How to Acquire Distressed Real Estate Assets

Tuesday, November 24th, 2009

I am out of town for Thanksgiving so I am thrilled to have a guest blog post from Adam Lubkin. Adam has gained some notoriety in the commercial real estate world for facilitating some prominent note sales. We are proud to be one of Adam’s approved developer partners. I hope you all enjoy his unique insight into the distressed acquisitions world.

How to Acquire Distressed Real Estate Assets

By Adam Lubkin

First, I would like to thank my good friend Matt Adler for allowing me to write a short blog on his site. I enjoy Matt as a friend, as a real estate professional, and I always appreciate his insight and views on real estate.

My company, Ibis Development Group, was created three years ago specifically as an outsource acquisition arm to approximately 30 developers throughout the United States. We locate, analyze, bid and hopefully close on all types of assets, primarily commercial real estate. Although we look at assets throughout the United States, recently we have had success within our home state of Florida with note and mortgage sales. The primary sources of these note sales are local and regional banks, large real estate funds, special servicers and attorneys.

Here are the top 5 frequently asked questions by our developer/owner-operator partners and our responses:

1) Do you analyze the note’s asset or just the discount from the note’s face value? We always analyze the underlying value of the real estate asset. In fact, we rarely ask about the mortgage’s face value. Obviously, we will eventually find out the asset value, but we want to first focus on the asset itself, not necessarily the discount being offered. Frankly, the discount offered is a secondary consideration. We prefer REO’s or deed in lieu scenarios. Most developers shy away from litigation, but that’s a real risk when playing in this arena and everybody has a certain level of risk tolerance.

2) What the best advice you can give when talking with the banks? Be considerate. Most of these bankers run into “tire kickers,” people who need to raise money in order to close, and inexperienced wannabe developers who talk a big game and just want to take advantage of a distressed situation. Remember, most of these bankers are also the same people who originated the loan so this process is very uncomfortable for them. Also, don’t assume that you are the only developer in town or the only company with cash. Its a very competitive marketplace, and there is incredible wealth out there and plenty of people who can close a deal. My advice is to show credibility through recent closings; be completely transparent and honest by showing your analysis, assumptions and ROE (Return on Equity); and be prepared to show proof of available funds. Lastly, act like you are the great wide receiver Jerry Rice – If you score a touchdown, just give the ball to the ref, don’t showboat and run quietly to the sidelines!

3) Are transactions happening? Absolutely. Deals ARE getting done quietly. Banks aren’t going to publicize the fact that they are selling bad loans, but they are. Furthermore, if you expect to buy more loans in the future, don’t brag about your most recent acquisition – It’s bad business. There is no upside for developers to spam e-mail the world or advertise about their conquests.