Apartment investors looking to deploy capital into distressed asset investments should bring underwritten proposals directly to special servicers and brokers, according to panelists at the MFE Conference held in Las Vegas last week.
Special service asset managers are typically fielding 30 to 50 cold calls per day from distress seekers, and additionally can be responsible for managing up to 35 individual asset accounts, which significantly limits their availability to respond to broad or non-specific asset requests.
“You need to identify the properties that you are interested in, do pre-due-diligence, and proactively make an offer,” said Michael Carp, executive vice president of Dallas-based Berkadia Commerical Mortgage, who joined Mike Kelly, president and co-founder of Denver-based Caldera Asset Management; Jay Hiemenz, chief financial officer of Phoenix-based Alliance Residential; and David Kulkarni, senior managing director of Houston-based HFBE Capital on a panel moderated by Greenwood Village, Colo.-based Laramar Group president and CEO David Woodward.
Speed and certainty of execution additionally continues to win the day when it comes to closing distressed acquisition deals. “Certainty of close is paramount,” Kulkarni said. “Having cash or proof of funds is critical. You can’t tie something up for 30 to 60 days on the finance side anymore.”
Accelerated deal closures are also limiting the length of due diligence periods, an additional challenge in special service situations where distressed borrowers typically don’t allow for physical inspections of the property. “It’s drive by and look out the windshield due diligence,” Hiemenz said. “All of these deals are unique, and you have to determine what is motivating the seller then you have to move quickly on an all equity basis—we have a deal that we had to close in eight days—you need to be able to react.”
Kelley explained that up-front asset homework was a part of the distressed acquisitions game that buyers need to either accept or move on and deploy investment capital elsewhere. “In particular, you need to decide what kind of asset you want, what type of asset class, what type of asset location, and then you need to accept the underwriting parameters,” Kelley said. “Know your product. Simply going out there and saying ‘I want to buy distress’ isn’t going to help the process.”