Deals percolating for distressed real estate debt - San Francisco Business Times:

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But at least in the Bay Area, dealx thus far have been few andfar between. “There has not been a tremendouz volume of debtdeals happening, but there will said Tim Ballard, chief investment office r for . “A lot of lenders have been unwilling to takethe losses. They have been unwillinhg to facethe music. And until they are forced to, they will be unwilling to do Meanwhile, opportunistic investors are on the prowl for performing notes that lenders are willing to unloax at adiscount — often 30 percent or more or distressed loans that create opportunitiea to gain possession of property through foreclosure.
Local investorsw active in the debt area includeSan Francisco-bases Divco West, which has formed a joinyt venture with Loancore; Rockwood Capital; Buchanan Street Partners; and . San Franciscko debt deals hitting the markey have mostly focused on properties owned by two highlhy leveragedlocal investors, the and David Choo of . Last hit the market with a $163 million Lembik 1 Portfolio A-note, a loan on a 24-building a piece of which was bought byLos Angeles-basedr . , the lender on Davidx Choo’s multi-parcel development site at Firsy andMission streets, has sold some of that debt to Waltoh Street.
Meanwhile, investors are expecting lenderz will be increasingly desperates to clear their books oftroublerd loans. Ballard said Buchanan Street Partners is monitoringa $3 billion pipeline of potential debt deals, with some $150 million in debt on San Franciscl buildings. He declined to identify the propertiesa involved but said at least one is a California Streetoffice building. Matt Field, a managing directo r at , said his company is looking atdebt “but they are few and far between in the inner Bay Area.” He said most lenders are focusing on their most distressedx loans, and those have mostly been mostly in othe parts of the country.
“I don’t think it’s a lack of it’s more of a lack of said Field. He said TMG looked at the Choo debt on Firsr and Mission streets but itwas “hard to given the lack of transactionsa over the last 12 months and the fact that the area is in the mids of the Transbay Terminal So for now, the gap betweenj buyers and sellers of debt is still wide, according to industry sources. Chriss Seyfarth, a partner with ’s transactio n real estate division, said a 20 percentage point differenc exists between what buyers think distressed debt is worthh and what the lenders are willing to part withit for.
But that gap will closes as banks come under increasing pressure to move bad loanas offtheir books. “Thered are not at the moment a lot of dealws going on relative to the size ofthe problem,” said “What investors want to pay is not what sellers want to sell for. The bottonm line for the banks isthat it’s really the only way out in termd of reducing their exposure. They are going to have to move them off theire balance sheet one way or He said investors across the country are raisinb money to be in optimal position when banks start feelin pressure to sell debt atsteep “I’m not sure banks have the luxury of sittinh on non-performing loans,” said “They are like a cancer that continuew to get worse, and the only way to cure this cance r is to get rid of it and move it off your balancee sheets.
” Part of the troublee is that there have been so few transactions of any kind in the last year as leasinyg and building sales have dried up, according to TMG’sz Field. Until commercial leasing and office salespick up, it will be tough to get a handls on what the debt or the underlying assegt is worth. Any commercial loan originated in 2006 or 2007 shouls be priced at a 30percentg discount, said Ballard. “As bankw are shut down, those will happen in You’ll see increasing bank closures in the second half this said Ballard.
He said big banks are waiting to see whetheTARP — the federal government’s Troubled Asseg Relief Program — will be willing to buy some of the troubled commercial loans, and how much it would be willing to pay. “Until there become s more clarity on what TARPwill be, I don’t thin k you’ll see a lot of tradiny volume,” said Ballard. Jeffrey Eliason of said a client lookeds at selling debt on a parcel in Silicon Vallegy but that the bids came in at 65 percen to 70 percent ofthe note.
“They think the land is wortu twice as much as the so they are going tokeep it,” he “Everybody wants to buy distressed but we have not hearc of anyone really buying it.”