Whether it’s apartment & multifamily property, office rental complexes, or retail centers, banks do not want to own commercial real estate. When an owner loses a property in foreclosure, it’s a terrible event for them, but it’s not all green grass for the bank either.

There is pressure to turn that property back into a profitable loan or get it off the books altogether.

While tens of thousands of residential rental property investors are competing to get the best deals on single family homes or duplex properties, there is much less competition in the commercial bank REO segment of the real estate market.

The sharp commercial real estate investor recognizes that cash flow is the primary focus of lenders in property valuation and lending, and many commercial bank REO properties are not in cash flow trouble. For reasons independent of cash flow, or because of correctable management and spending mistakes, the cash flow of a commercial bank REO property might be excellent or repairable in short order.

The investor who locates a potential deal and recognizes this can often make a bargain purchase well below true market value and negotiate excellent financing as well.

· Owners in trouble in other investments – Sometimes it isn’t the property the bank took back that was the major problem for the owner. Other situations in their business or personal life caused a financial collapse that took down a good property with it.

· Errors in judgment & management – Facing reality, there are people who shouldn’t own commercial real estate, or at least they shouldn’t manage it. They spend money in the wrong areas, invest in unwise improvements, or decimate cash flow in other ways. This creates an opportunity to make inexpensive corrections that can dramatically repair and increase cash flow.

· Make more than a price offer – When approaching the bank to make an offer on the commercial bank REO property, providing options can help to seal a profitable deal. The bank wants to sell, but there are bookkeeping and regulatory considerations. Sometimes a higher price can work better for the buyer if the bank is willing to trade a lower down payment and cut the interest rate on a new loan.

Commercial bank REOs are some of the most lucrative investment opportunities out there, and with less buyer competition. They’re worth serious consideration.

I’ll share more with you soon…

Warm Regards,

Karen Hanover, CCIM Candidate
Apartment Education Institute, President

Assuming the mere fact that it’s a foreclosure makes it a poor investment candidate is far from accurate.  Apartment & multifamily projects go into foreclosure all of the time, and reasons and motivations of the concerned parties can create all sorts of situations and opportunities.  In examining the situations and motivations of those involved in an apartment or multifamily foreclosure, the smart investor can ferret out profitable properties.

The Mortgaged Owner Losing the Property

Though it can be the case, the assumption that the owner losing the property is in this situation due to poor cash flow or problems not economically correctable is not accurate in many cases.  Sometimes the owner has gotten into a situation with other less profitable or negative cash flow investments, and can no longer continue without bankruptcy.  The foreclosed property in this case may be cash flow positive, and a factor in their ability to hold out until the current crisis.

It could be that there has been an increase in vacancies due to property condition and poor management.  But, if the condition items or management issues can be corrected at reasonable cost, negotiations with the foreclosure lender can gain concessions that make this a profitable apartment or multifamily investment.

The Lender

Motivation here is obvious.  Lenders make money loaning money, not managing apartment & multifamily projects.  The lender wants this property off the books as quickly as possible.  Unlike a single family home that can just be boarded up and ignored, there could still be tenants and some cash flow, so management headaches are present as well.

The Foreclosure Investment Buyer

Again, no mysteries here.  The apartment & multifamily foreclosure property buyer is looking for a bargain purchase with excellent future cash flow.  The ability to accurately identify costs and mortgage requirements to reach that positive cash flow point is crucial.  But, outlining the issues and costs during the negotiations can result in price or financing concessions from the lender that will make the deal happen.

Apartment & multifamily foreclosure purchase opportunities are out there.  Don’t let misconceptions deter researching them.

Karen Hanover, CCIM Candidate
Apartment Education Institute, President