“Asset Recovery Teams” Lenders beware! Why they should be avoided.

In preparation of the the anticipated surge in commercial loan defaults, many large real estate companies have created “Asset Recovery Teams” in order to grow their portfolio’s.
On the surface, these ART’s appear to be just what the doctor ordered in helping lenders steer the defaulting asset through the transition and back to profitability or ultimate sale. Everyone in real estate and in the commercial lending business fully understand that lenders are ill equipped or simply have no desire to manage these assets. However, lenders need to be wary of the “wolf in sheep’s clothing”. Particularly when dealing with the larger well known real estate companies. They will ride in like a “knight in shining armor” but have intentions that are anything but admirable.

More than a fair share of these companies have under-performing assets in which they already have been managing. This can falsely give the impression that they are equipped to handle these types of assets. The questions that should be asked from lenders are, “Why are assets currently under your control under-performing”? How does that help me? “Why hasn’t your ART solved your own internal problems”? “How can they be expected to solve mine”? ”How can I be sure that your recovery team has qualified individuals looking out for me”?

More importantly, how are they going to manage your asset from their “ivory towers”?
The larger companies may indeed fit into the ideals of the large commercial lenders like JP Morgan, Merrill Lynch etc. but they do nothing for the smaller, local lenders. It is these lenders that need to consider whether national companies are worth the premium price you will pay for their services and whether they can deliver efficiently and cost effectively.
Smaller regional and local lenders should be focusing on “buying local” first. There are more than enough qualified smaller companies in the local marketplace with the capabilities to handle these assets. More so, using local companies vs. the nationals has several distinct advantages.

Locals know the marketplace, have connections within the community, are more apt to care about the asset performance and how their company and managed asset is perceived. Local companies have less red tape, are more adaptable, nimble and have the ability to immediately keep client’s abreast of recent activities. Further, lenders who use local business’ are in fact stimulating their local economy. It’s an obvious win-win situation.

Further, local companies with an IREM Certified Property Manager should be the lenders first and only choice. IREM Certified Property Managers have the level of experience, expertise and network infrastructure in place to effectively manage these assets. In fact, even in good times, manager’s who hold the CPM designation have already been predisposed in the principles of increasing NOI and meeting the owners goals.

So lenders, please keep this in mind when selecting a company to manage your distressed asset.