Economists point to 2012 as a year of both positive and . . . → Read More: Predictions For 2012]]> Looking ahead to 2012, one can only hope the previous year’s upswings will continue. However, predictions, by definition, are not certainties. Things can change on a dime: natural disasters, international upheaval, presidential election year surprises; they all have an effect on markets worldwide.

Economists point to 2012 as a year of both positive and negative trends for the commercial real estate sector, with slow improvement being the underlying theme, especially in the New York metropolitan area. While the U.S. economy slowly rights itself and construction activity remains at record-low levels, driving better rent and vacancy trends, foreign investors should continue to capitalize on advantageous opportunities. Cap and interest rates are coming down to pre-recession levels. However, the volatile political and economic situations in Europe could potentially put a wrench in that positive forecast and is something to monitor carefully.

According to a new white paper from Forward Management, LLC, the recovery is expected to play out unevenly across the U.S. and international markets, with the first wave focused on knowledge-based, gateway cities and technology corridors. Cities recover more quickly than outlying areas, having more job growth and business opportunities. It spells a continuation of good news for the city of New York which also has greater ties to global and financial trading.

We at Berko & Associates are optimistic about the New York market as the fundamentals are only getting stronger. We have gone through expansion and aggressive hiring of professional associates with multiple complimentary backgrounds to our commercial real estate business; investment bankers, wall street finance professionals, developers and seasoned brokers have recently joined the ranks of Berko & Associates. I believe in our firm’s diversity as a way to reach a wider market segment and better serve our growing client’s demand for quality real estate services in the coming year.

The most obvious opportunities of significant appreciation and . . . → Read More: Creating Value Through Asset Recapitalization]]> As the commercial real estate market begins to show signs of stabilization, particularly in the New York metro area, savvy investors are rushing to find opportunities to position themselves for the rebound they expect to occur at some point in the not so distant future.

The most obvious opportunities of significant appreciation and returns are in distressed assets. While the financial structure of these assets might be in shambles, their underlying fundamentals, including location and quality of construction, are very much in tact and poised to recapture their value as the market continues to recover. As a result, every good deal has multiple bidders and the competition to source new deals is fierce.

One of the primary ways that asset owners and lenders are attempting to salvage their distressed assets and recreate their value is through asset recapitalization. This recapitalization is usually accomplished by the infusion of new equity to replace the original equity that has in most cases been wiped out as a result of a significant drop in the underlying asset value. The recapitalization must be implemented with the agreement of the primary and secondary debt holders in the capital stack. These debtors often agree to take a discount on their original loan in the hope of eventually recouping the entire amount when the asset regains full value.

An asset recapitalization doesn’t necessarily mean that the original equity holder or sponsor, whose equity has been wiped out, is left with nothing. In many cases the new equity partners are willing to allow the original sponsor to rebuild some of their equity in exchange for managing the asset.

For example, in a distressed $56 million prime NYC location development deal that Berko & Associates is currently negotiating, the institutional equity partners that the firm brought into the deal are willing to take a discount on their capital infusion to maintain the original sponsor as manager of the property, allowing him to recreate equity in the project again.

In another distressed Class A, 300,000 SF, $100 million shopping mall in default since 2009, Berko & Associates used its international connections to find an Israeli investment company to infuse new capital and revitalize the asset.

The opportunities for creating value from distressed assets is there, but the competition for those opportunities is fierce. Berko & Associates has the experience at negotiation and structuring asset recapitalization plans that has proven beneficial to owners, lenders, and equity partners. Berko & Associates also has the local, national, and international connections required to find the right equity partners for even the largest and most complex deals.

Contact Berko & Associates today to find out how to successfully recapitalize your assets and recreate your equity and asset value.

Multifamily and commercial properties that were purchased . . . → Read More: Sourcing Distressed Assets]]> Over the past two years the slumping US economy, high unemployment rate, and curtailment of favorable financing opportunities have taken their toll on every sector of the real estate market. Millions of properties have either gone into foreclosure or are being sold below their original appraised value.

Multifamily and commercial properties that were purchased at the height of the real estate bull market are now worth less than their mortgages and are being taken over by the banks that financed them. As a rule, banks like to lend money, not manage real estate, especially non performing real estate, which means they want to get rid of these distressed assets as quickly as possible. Banks are holding billions of dollars worth of non performing real estate assets which they need to dispose of to try and recoup their losses and resuscitate their ailing balance sheets.

In addition to the assets already foreclosed on by the banks, there are billions of dollars worth of distressed assets that are still in the possession of their owners. These owners have three choices: renegotiate their financing with their lender, sell the asset, or default and walk away from their equity. In certain situations the banks are negotiating with the property owners in the hope of waiting out the economic slump and getting their money back when values rebound. However, many banks either cannot or do not want to renegotiate their loans. In areas where property values have somewhat stabilized, albeit at a lower value than before, the owners can sell and still have some equity left after repaying their debt. Otherwise, the property reverts to the bank.

While the distressed asset situation is bad news for owners and banks, it presents potentially unprecedented opportunities for savvy investors to acquire valuable assets at below market prices. However, jumping into the market too early could be disastrous, but waiting too long could mean missed opportunities. The competition for distressed assets is fierce. Billions of dollars of cash is waiting on the sidelines for the right opportunity. Timing is everything.

Pricing is also critical. Most owners are reluctant to lower their prices to reflect the true value of their asset for fear of losing all of their equity. Therefore, many distressed assets placed on the market by their owners are overpriced. Even banks have been resistant to selling their distressed assets for too much below value out of a desire to protect their ailing balance sheets. Recognizing too many loses could potentially put them out of business. Berko & Associates recently negotiated the acquisition of a portfolio of non performing commercial assets where the appraised values placed the loans at nearly 100% value. A classic scenario in today’s market, the lender agreed after a long negotiation process to discount the notes to a lesser LTV and move the portfolio off of his balance sheet.

So while distressed asset opportunities exist, they need to be properly identified, analyzed, and negotiated to assure that the purchaser is getting a deal worth their while. Investors are wise to use the services of an experienced advisor that understands the intricacies of distressed assets.

Berko & Associates have successfully advised nationally chartered banks as well as private equity funds and individuals. Our company sources the assets, analyzes it’s risk and potential rewards, and negotiates and closes performing notes and distressed assets. Our personal relationships with property owners, banks, and lenders in NYC and throughout the nation provide us access to distressed asset opportunities well before they reach the market. This is where Berko & Associates’ value added approach can present the greatest opportunity for our clients’ success.

Contact us today and let us put our expertise and experience to work for you.