REO Starting to Open Up?
There is a report out on Bloomberg that FDIC bank regulators are in the process of issuing guidelines on commercial real estate loan workouts for banks. Is this the moment we’ve all been waiting for? Probably so, and I am looking for 2010 to be the year of commercial real estate REO as there was a lot of talk about REO in 2009 but it never really materialized, save some of the single and multi-family residential.
Bridgewater Falls in suburban Cincinnati, Ohio may be a shade of things to come. Bridgewater Falls is a 600,000 sq. ft. “power town” originally developed by the now defunct Premier Properties. The center is basically a hybrid, something of a cross between a traditional power center and a lifestyle center. Believe it or not, this center had an $80 million dollar loan on it and entered foreclosure in early 2009. The lender, Wachovia, sold the property to itself for $33 million, or a whopping 59 percent less than the original loan, after no higher bids emerged at an auction back in March of 2009.
Just last week this center traded hands again. The buyer, a distress/opportunity fund operated by Phillips Edison, paid $43 million for the center in an all cash transaction. My sources tell me the cap rate was in the range of 10%-11%, thereby raising the bar for these types of transactions. The tenants are basically a who’s who of retail survivors that you want in a power center project – JC Penney, Target, Dick’s, TJ Maxx, Best Buy, Bed Bath & Beyond and PetSmart. This type of project could have easily traded in the 8%-9% range just a few short years ago. Clearly this sets a new lower level of value for power/big box centers. This segment is where notable distress exists in retail real estate given the rampant overbuilding throughout this decade (almost 50% of new space constructed was in power center/big box retail), and the fallout from the bankruptcies of Circuit City, Linen’s N Things. I look for many more of these opportunities to become available and I strongly feel 10% is the new cap rate floor in these types of transactions. REO buyers take heed.
Tags: commercial real estate loan, phillips edison, power centers, premier properties, reo properties Posted in
