Commercial Real Estate Market Gains Due to Distressed Assets Sales

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A new commercial real estate market is taking shape in the form of shrewd investments out of previous years bad deals.

Because there’s still an estimated $3.5 trillion of loans outstanding and probably another 12 to 24 more months of rent declines, we can expect a continuation of commercial property defaults nationwide.

Last month, investment group Paulson & Co., Blackstone Group, and Centerbridge Partners purchased bankrupt hotel corporation Extended Stay Inc. (which operates more than 600 hotels), for $3.93 billion, less than half what previous owner Lightstone Group paid for it at the height of the real estate boom in 2007.

While this is the largest commercial real estate sale so far this year, it happens to be a distressed based transaction, according to Guardian Solutions. Distressed asset sales are alarmingly becoming more commonplace in today’s economic climate as struggling commercial property owners are forced to sell at a loss.

“Because there’s still an estimated $3.5 trillion of loans outstanding and probably another 12 to 24 more months of rent declines, we can expect a continuation of commercial property defaults nationwide," says Ira J. Friedman, President of Guardian Solutions, a Florida based commercial loan restructuring firm.

The latest release of the Moody’s/REAL Commercial Property Index showed a notable monthly decline of 3.3% since July suggesting that the nation’s commercial property markets are continuing to slump through a tremendous downturn that has seen prices down some 45.31% since the peak set in October 2007.

Major challenges still lay ahead for commercial real estate, including the uncertainty related to the use of valuations such as cap rates and comps; the manner in which these metrics are employed, directly affect the outcome of proposed sales as well as alternative solutions like loan restructures for distressed properties.

One group of commercial property owners who were able to successfully renegotiate mortgage restructures for two of their hotel properties through Guardian Solutions was AllStar Investments, LLC.

“Guardian Solutions took what appeared to be a hopeless situation for two of our hotels and turned them both around. They negotiated a discounted buy-out of the notes at approximately .60 cents on the dollar,” said an AllStar Representative.

In August 2010 more than one in four commercial property sales involved distressed real estate, according to Moody's. During that month, U.S. commercial property prices also fell to their lowest level since June 2002, according to the Moody's/REAL Commercial Property Price Index.

Shrewd investors with substantial cash on hand who can afford to sit out an uncertain market are banking on the economy to rebound and see appreciable gains on their investment down the road. But how long they will have to wait is anyone’s guess.

“In order for these types of buyout deals to work, investors are buying properties at deep discounts from the market highs of previous years; the intent is to turn them into performing assets at today's market price," added Friedman. "Some of what you are seeing is investors seizing the opportunity to buy established commercial properties for less than what it would cost to build. It is a potentially faster path to profitability than with a start-up."

About Guardian Solutions
Guardian Solutions is the one of nation’s largest commercial loan restructuring companies and is committed to helping commercial property owners save their properties. The company’s knowledgeable mitigators are experienced in a variety of disciplines to provide customized restructuring solutions. For more information, visit

Jamie Sene
Vice President, Marketing
Guardian Solutions


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Jamie Sene