We recently received an interesting assignment from one of our clients, an asset manager in the REO department of a commercial real estate lender. The assignment was this: sell a foreclosed mixed-use property on Chicago’s West Side…and, oh, by the way, do it in a week. As it turns out, that week would include some quality time with Chicago’s Finest, a narrow escape from an attack dog, an unexpected bidding war and, eventually, a sale. But it also included some very important lessons on finding buyers for distressed commercial real estate today.
The property was located in Austin, on a highly visible corner, near a Green Line ‘L station. It had five storefronts (all but one rented) and three apartments (all occupied but none collecting rent). Another broker had tried unsuccessfully to market the property for about a year.
The asset manager sent us out to have a look. When we tried to access the apartments, we only made it as far as the vestibule before a very large, angry dog came bounding down the steps and leapt at us just as we managed to shut the door. The retail was a bit more hopeful. The tenants included a restaurant, clothing store, grocery store and liquor store, and we could tell right away that the businesses were generating good cash flow.
On our follow-up visit, we were accompanied by the Animal Control unit of the Chicago Police Department. For some crazy reason we were under the impression the cops would go in first, make sure the dog wasn’t going to kill us, and then allow us to enter. That’s why it was a little surprising to look back and see the cops following us up the stairs. This time though, the dog didn’t attack, and we were able to meet with the apartment occupants and get assurances that rent would be paid.
We completed the Broker Price Opinion and signed the listing agreement on a Monday. Tuesday, the lender called and said they would drop the price 5 percent if we could find a buyer to close by Friday. He needed to get the asset off the books.
Let’s stop right here and review. 1. We need to find a buyer and ink a purchase agreement. 2. That buyer needs to line up financing and be ready to close in four days. 3. We’re in one of the toughest neighborhoods in Chicago. 4. Cujo lives upstairs. Now, who’s your likely buyer? It seems like an impossible question, but the answer is really quite simple.
On our first visit we identified the two tenants who were paying the most rent and asked them if they’d ever thought about buying the property. It turns out they had, but no one had ever approached them on the subject, including the broker who sat on the listing for the past year. A short competition between the two tenants ensued, and one emerged as the stronger buyer. They managed to get a loan and, miraculously, to close by the end of the week. Problem solved.
What’s the takeaway? Well there’s a couple. First, nothing is impossible. Even in today’s market, you can sell an investment property at the right price in a matter of weeks or even days. Second, you can’t wait for a buyer to come to you. You’ve got to identify the likely prospects and show them the opportunity. In a situation like this, the buyer isn’t going to be the guy who drives in from Winnetka once a month to collect rent. It’s going to be the guy who looks after the property 24/7, who knows who’s coming and going, and, most importantly, who isn’t afraid of big dogs.
REO Disposition
Bank Owned
