When dealing with distressed properties, funds often are not available for marketing these assets through traditional channels. A mortgage broker who is skilled in bringing together potential buyers and sellers can be an especially valuable member of the team charged with marketing distressed assets.

Although market conditions are making senior-debt investments more appealing, this form of investing typically involves more parties and often is more complicated than traditional property acquisitions. To complete a foreclosure, an investor purchasing a first mortgage may be required to negotiate with the seller as well as with other mezzanine lenders and equity providers.

In these scenarios, experienced mortgage brokers have many opportunities to provide senior-debt investors with access to the capital-restructuring expertise and superior relationship-management skills that are essential to these transactions' success.

Recapitalization

The recapitalization of the commercial real estate industry will be an issue for years but is just getting under way, according to Prudential Real Estate Investors' July 2009 Quarterly Market Perspective. The report points to private and public firms repairing their balance sheets and raising capital to be able to take advantage of the opportunities that likely will come as values decrease and distress becomes more widespread.

We have yet to see a surge of distressed transactions, however. The volume of troubled commercial mortgages increased by $60 billion in the first half of 2009, bringing the total to $107.1 billion, according to Real Capital Analytics. Only $4.1 billion reportedly had been resolved by midyear, however.

Further, the Federal Deposit Insurance Corp. (FDIC) says losses on commercial real estate mortgages have been modest so far, with net charge-offs on loans backed by nonfarm, nonresidential properties at $6.2 billion in the past two years. Delinquent loans have quadrupled in the same period, however, and the FDIC expects this rate to increase further as more commercial loans mature in the next few years.

By developing expertise in capital restructuring as well as dexterity in managing complex business relationships, mortgage brokers will develop skills that should be in high demand for years to come. Expanding their skills also will help brokers build and retain their client base.

Samuel A. Gillespie is chief operating officer of Behringer Harvard Opportunity Advisors in Addison, Texas. Contact him at (469) 341-2309 or e-mail sgillespie@behringerharvard.com.

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