MorrisAnderson

Activity has picked up in the beleaguered commercial real estate market, but many firms are still waiting for distressed asset opportunities to emerge.

Earlier this year, three former Hilco Real Estate executives struck out and formed Frontline Real Estate Partners. Mitch Kahn, former president and CEO of Hilco Real Estate, Josh Joseph, and Matt Darin believed that the current market environment would allow them to parlay their experience at Hilco into success, by providing consulting services on distressed properties and acquiring strategic retail and industrial properties. While the consulting portion of that equation has kept them extremely busy in 2010, the acquisition side has been far from robust.

Kahn says that the acquisition market is slow because financial institutions are not in a rush to dispose of distressed assets. The strategy seems to be for large banks to build up capital and then take strategic write downs on their balance sheets.

“Banks are being smart about it and taking hits when they need to,” says Kahn.  “They are in no hurry.”

As a result, activity in the distressed investment market has been slow. The firm has made one retail property purchase with privately raised capital.

However, on a somewhat positive note, the slow market has allowed prices to stabilize, and in some cases, realize slight appreciation in recent months. This has brought more activity to the market as investors and financial institutions are a bit more secure regarding asset values.

“The bid-ask price has narrowed in the last six months,” says Darin. “We have seen multiple bids out on recent note sales.”

Yet despite the slow acquisition activity, Kahn is not worried about the long-term prospects for opportunities. By some estimates, trillions of dollars of commercial real estate loans will come due during the next three years. Refinancing many of them will be difficult. It could be that banks are building balance sheets now to absorb more write-downs later.

“I believe we are in the first or second inning of the process,” says Kahn. “I don’t think it will get worse, but I think we will bounce along the bottom for four or five years. We could have a few good quarters and then a few bad quarters.”

For now, the consulting portion of the business keeps them busy. The firm has a wealth of experience in dealing with bankruptcies and the disposition of large portfolios as both Kahn and Joseph worked with MCI/WorldCom, Interstate Bakeries Corporation, Bally Total Fitness, Sharper Image, Levitz Furniture, and Jacobson Department Stores during their time at Hilco.

The firm also has a strategic partnership with MorrisAnderson, allowing the company to deliver a larger package of services.

Subject

Real Estate

Industry

Real Estate