Distressed Commercial Real Estate Workouts Opportunities Transcript1. [dp]
Distressed Commercial Real Estate
Workouts and Opportunities
Brecht Palombo of distressedpro.com and Bob Thomas of Turnstone Property
PODCAST
TRANSCRIPT
http://www.distresesdpro.com/blog/podcasts/
1 of 9 Tuesday, October 27, 2009
2. Brecht
Palombo:
Okay
everybody
this
is
Brecht
Palombo
with
Distressed
Pro
and
The
Bank
Prospector
and
today
I
am
very
excited
to
have
Bob
Thomas
on
the
line.
Bob
has
owned
a
company
called
Turnstone
Property
since
1997
and
he
is
very
well
know
in
the
greater
Boston
area
and
beyond
for
doing
a
number
of
different
sorts
of
deals
in
this
area
and
we
have
him
on
the
line
today
because
what
we
are
going
to
talk
about
it
what
he
has
been
doing
since
we
have
seen
a
shiD
in
the
market
here
and
what
his
company
has
been
up
to
so
the
first
thing
I
want
to
just
go
right
at
it,
what
have
you
been
working
on
out
there
Bob?
Bob
Thomas:
Hi
Brecht,
glad
to
be
here,
I
have
been
working
recently
on
workouts
and
consulJng
relaJng
to
commercial
real
estate
loans
in
Florida
recently.
Brecht
Palombo:
Okay,
everybody
is
excited
about
working
with
the
banks
right
now
and
I
know
banks
are,
they
are
moving
through
an
awful
lot
of
stuff
so
I
thought
having
you
on
the
line
today
where
you
have
been
out
there
doing
all
sorts
of
loan
consulJng
and
workout
that
you
have
been
doing
maybe
tell
us
a
liLle
bit
about,
well
first,
what
kind
of
assets
have
you
been
working
on
in
Florida?
Bob
Thomas:
The
gamet,
everything
from
failed
subdivisions
to
industrial
to
condo
conversions
that
did
not
work
out,
office
buildings,
the
whole
gamet.
Brecht
Palombo:
Okay,
that
is
good;
it
sort
of
gives
us
a
nice
base
to
see
where
you
are
coming
from.
So
why
don’t
you
tell
us,
what
is
it
that
you
see
as
sort
of
the
biggest
problem
or
the
biggest
challenge
out
there
on
the
market
right
now?
Bob
Thomas:
The
challenge
is
see
and
keeps
coming
back
over
and
over
is
a
detachment
by
lenders
from
the
underlying
bricks
and
mortar
collateral
and
I
think
this
is
really
at
the
root
of
the
current
situaJon.
UlJmately
the
value
of
these
loans
comes
down
to
the
quality
and
the
characterisJcs
and
the
performance
of
the
collateral
and
the
loans
were
oDen
made
on
faulty
assumpJons
about
the
performance
or
the
potenJal
of
the
quality
of
the
real
estate,
and
in
the
most
egregious
cases
loans
were
made
on
property
which
the
lender
may
have
never
actually
physically
inspected.
Brecht
Palombo:
Wow,
and
so
these
are
real
problems
you
are
seeing
out
there
in
the
market.
2 of 9 Tuesday, October 27, 2009
3. Bob
Thomas:
Well
sure,
and
it
is
not
always
the
case
of
the
market
shiD
is
the
main
thing
that
has
happened
but
yeah,
there
is
a
detachment
or
there
has
been
a
detachment
from,
by
lenders
for
the
collateral.
Brecht
Palombo:
Okay,
then
tell
us
a
liLle
bit
about
your
company
has
been
up
to
since
the
shiD
in
the
market
and
sort
of
how
you
are
addressing
that
problem
or
that
challenge?
Bob
Thomas:
Well
through
Turnstone
ProperJes
affiliate
special
assets
advisors,
we
have
been
focusing
more
on
debt
and
asset
management
the
recent
work
in
Miami
and
less
given
the
environment
on
development,
we
have
a
great
team
with
experience
that
spans
back
from
the
last
situaJon
in
the
late
80’s
and
early
90’s
and
all
the
way
through
the
current
situaJon
and
experience
in
both
banking
and
real
estate.
In
addiJon
to
working
with
lenders
we
have
been
talking
to
private
equity
funds
and
other
investors
about
evaluaJng
loan
pools
and
individual
assets.
Brecht
Palombo:
So
I
guess
a
liLle
bit,
you
talked
a
liLle
bit
about
who
your
clients
are
but
why
are
banks
looking
at
outside
consultants
like
you?
Bob
Thomas:
Yeah,
well
the
truth
is
many
banks
are
not
hiring
outside
consultants
and
are
opJng
to
use
in‐house
resources
and
oDen
this
involves
having
loan
officers
handling
workouts.
SomeJmes
their
own
or
their
colleagues
loans
which
does
present
a
conflict.
Brecht
Palombo:
What
do
you
mean
by
that?
Bob
Thomas:
Well,
handling
workouts
implies
a
criJcism
of
the
loan,
so
even
though
the
goal
is
not
to
place
blame
an
insider
might
feel
uncomfortable
or
unable
to
say
the
tough
things
and
make
the
tough
calls
on
a
loan
that
he
may
have
made
or
a
colleague
or
even
his
boss
may
have
made
so
the
primary
reason
to
bring
in
an
outsider
is
that
consultants
can
say
things
that
insiders
have
a
harder
Jme
saying.
Brecht
Palombo:
Right.
Bob
Thomas:
Also
of
course
the
skill
set
is
different,
underwriJng
loans,
managing
the
relaJonship
with
the
borrower;
this
is
all
different
from
deal
with
a
loan
that
is
broken.
So
it
requires
a
change
of
perspecJve
and
it
requires
different
strategies.
3 of 9 Tuesday, October 27, 2009
4. Brecht
Palombo:
Right,
so
tell
me
a
liLle
bit
about,
or
tell
us
a
liLle
bit
about
what
you
are
consulJng
on
exactly
and
sort
of
what,
the
mechanics
a
liLle
bit
about
what
you
have
been
doing?
Bob
Thomas:
At
the
moments
we
are
doing
workouts
on
a
porolio
of
nonperforming
loans
as
I
said
for
a
Miami
based
bank
for
the
same
back
we
recently
completed
an
assignment
evaluaJng
collateral
underlying
performing
loans.
Brecht
Palombo:
And
so
what
is
that,
what
does
that,
can
you
talk
a
liLle
bit
about
what
work
consists
of
just
for
anybody
who
is
not
in
that
same
space
that
you
are
in?
Brecht
Palombo:
Sure,
sure,
well
the
reason
to
evaluate
performing
loans
is
that
because
the
environment
has
changed
so
dramaJcally
over
the
last
year
and
a
half,
two
years,
property
which
may
have
had
certain
potenJal,
certain
value
may
not
any
longer
have
that
potenJal
or
value
so
the
job
entailed
in
evaluaJon
of
the
collateral
is
to
understand,
does
the
original
evaluaJon,
does
the
original
game
plan
for
the
property,
if
there
was
a
project
involved
sJll
make
sense
in
the
current
environment.
And
the
goal
there
is
to
get
ahead
of
the
curve,
for
the
bank
to
be
able
to
get
ahead
of
the
curve
and
understand
which
loans
are
at
risk
and
to
be
proacJve
and
working
out
soluJons
because
the
longer
problems
go
unnoJced
the
worse
they
can
become.
Brecht
Palombo:
So
you
might
get
a
stack,
I
am
sorry
to
interrupt
you
but
I
just
want
to…
Bob
Thomas:
No,
go
ahead.
Brecht
Palombo:
want
to
make
sure
I
get
an
understanding
of
it,
so
you
might
get
a
stack
of
currently
performing
construcJon
or
commercial
notes
that
for
one
reason
or
another
the
lender
thinks,
gees
we
ought
to
be
keeping
our
eye
on
this
and
then
you
will
sort
of
pour
through
the
notes
to
get
an
understanding
of
what
the
collateral
is,
visit
the
collateral
or
the
property
I
should
say
and
this
sort
of
thing,
is
that..
Bob
Thomas:
Exactly,
this
is,
in
the
case
of
that
assignment
it
was
taking
a
hard
look
at
the
physical
asset
so
to
give
you
and
example,
a
borrower
purchases
a
mulJ‐family
property
with
the
intent
of
converJng
it
to
condominiums.
Brecht
Palombo:
So
who
did
not?
4 of 9 Tuesday, October 27, 2009
5. Bob
Thomas:
Well
and
then
so
maybe
we,
maybe
we
go
and
take
a
look
at
it,
maybe
this
is
a
really
great
property
and
it
is
really
condo
quality
and
maybe
it
does
not
make
sense
right
now
but
maybe
the
thing
sJll
has
an
inherent
value
and
maybe
that
might
be
a
possibility
in
the
future,
on
the
other
hand
it
might
be
that
that
only
made
sense
in
a
very
frothy
environment
when
a
different
type
of
asset
at
a
lower
grade
of
asset
could
be
successfully
converted
to
condominiums
and
maybe
even
occupancy
as
a
rental
has
not
been
so
good
and
maybe
the
property
itself
has
lost
value
over
Jme.
Brecht
Palombo:
Right,
and
that
example
that
you
give
with
the
condos,
maybe
you
even
help
the
bank
to
avoid
making
any
further
disbursements
on
a
project
that
is
really
never
going
to
come
to
pass
or
should
not
come
to
pass.
Bob
Thomas:
Well
there
is
a
broad
array
of
strategies
and
tools
that
can
be
used
and
the
goal
of
course
is
to
maximize
recovery
for
the
bank
or
in
case
of
performing
loans
to
ward
off
any
future
problems.
There
might
be
a
need
to
rebalance
to
loan
to
value
outside
addiJonal
equity
may
be
required,
there
may
be
a
possibility
of
restructuring
the
loan,
there
are
any
number
of
strategies
that
can
be
employed.
Brecht
Palombo:
So
that
is
performing
loans
let
us
talk
about
what
everybody
is
talking
about
out
there
right
now
and
that
is
nonperforming
loans
and
I
have
got
to
assume
that
you
are
seeing
stacks
of
those
right
now,
what
is
your
strategy
there?
Bob
Thomas:
Well
it
is
really,
these
tools
I
have
just
described
possibly
looking
to
inject
more
equity
into
the
deal,
possibly
restructuring
the
debt
in
a
way
that
allows
it
to
perform
over
the
near
term,
again
the
goal
is
always
to
maximize
recovery
for
the
lender
and
that
may
mean
recovery
now
or
the
potenJal
for
future
recovery.
Brecht
Palombo:
Okay,
well
Bob
in
addiJon
to
the
banks,
is
there
anyone
else
who
ought
to
be
looking
at
the
sort
of
services
that
you
are
talking
about?
Bob
Thomas:
Well
yes,
for
our
non‐lender
clients,
buyers
of
distressed
assets
who
are
oDen
not
themselves
real
estate
professionals
we
can
provide
real
estate
experJse.
A
reality
based
bricks
and
mortar
assessment
of
the
collateral
that
is
underlying
the
notes.
And
on
the
other
side
for
those
that
are
selling
notes,
banks
selling
notes,
or
other
lenders
selling
5 of 9 Tuesday, October 27, 2009
6. notes,
especially
notes
that
are
Jed
to
complicated
development
deals,
we
found
we
are
able
to
provide
a
clear
summary
for
the
market
of
what
exactly
is
being
sold,
so
that
is,
what
is
the
land,
what
are
the
permits
for,
how
long
do
the
permits
last,
what
kind
of
construcJon
has
been
done,
they
types
of
things
a
developer
or
an
investor
needs
to
know
in
order
to
make
a
decision
about
that
acquisiJon.
Brecht
Palombo:
Well
where
are
some
of
the
current
opportuniJes
if
we
could
shiD
for
just
a
minute,
where
are
some
of
the
current
opportuniJes
for
investors
would
you
say?
Bob
Thomas:
Yeah,
there
are
a
lot
of
investors
out
there
wanJng
to
take
advantage
of
the
current
situaJon
and
I
do
think
that
amidst
the
wreckage,
there
are
some
good
opportuniJes.
Especially
in
the
hardest
hit
places
like
south
Florida
where
clearing
prices
are
being
reached
for
distressed
assets.
I
am
finding
many
investors
are
looking
for
the
perfect
deal.
High
return,
low
risk
and
from
what
I
have
seen,
perfect
deals
are
very
rare,
the
market
is
just
too
efficient
for
that
and
investors
I
think
who
are
probably
going
to
be
successful
are
making
deals
that
may
look
risky
now,
they
have
issues,
that
is
why
there
are
in
distress
but
in
the
future
I
think
these
deals
will,
the
right
ones
will
seem
to
have
been
steals.
Brecht
Palombo:
And
so
what
other
opportuniJes,
we
talked
about
some
of
it
but
what
else
do
you
see
out
there
as
opportuniJes
for
investors
and
what
type
of
person
or
what
type
of
investments
do
you
see
that
folks
should
be
looking
to
capitalize
on
right
now?
Bob
Thomas:
Yeah,
well
I
menJoned
that
I
think
there
are
very
few
perfect
deals
and
I
think
the
opportunity
broadly
is
for
the
entrepreneurial
investor
who
is
a
problem
solver,
who
is
willing
to
take
on
an
asset
that
has
something
wrong,
something
that
needs
fixing
and
take
on
that
challenge.
Brecht
Palombo:
And
I
presume
just
from
the
sort
of
work
that
you
are
doing
that
you
are
kind
of
geang
a
first
look
at
these
sorts
of
opportuniJes?
Bob
Thomas:
Yes,
yes
there
is,
I
mean
I
am
geang
an
inside
look
at
the,
some
specific
examples
but
one
only
need
drive
around
some
major
American
ciJes
and
you
can
see
the
types
of
deals
that
did
not
work
out.
Brecht
Palombo:
Well
is
that
not
the
truth.
Right,
now
looking
at
these
opportuniJes,
what
are
some
of
the
pialls
that
you
would
say
they
should
avoid
or
they
can
look
out
for?
6 of 9 Tuesday, October 27, 2009
7. Bob
Thomas:
Yeah,
well
in
the
case
of
residenJal
deals,
it
is
possible
to
pick
up
blocks
of
condominiums
for
example
at
very
low
numbers,
well
below
replacement.
Issues
are
related
to
homeowner
associaJon
solvency
issues,
there
may
be
a
majority
of
people
in
the
building
who
are
in
financial
trouble
who
may
even
be
in
foreclosure
and
the
quesJon
is,
who
is
going
to
pay
the
condo
fees
and
who
is
going
to
keep
the
lights
on
and
there
are
also
issues
related
to
construcJonal
liability
if
you
buy
enough
units,
the
investor
may
take
on
the
liability
of
the
original
developer.
Overall
it
is
the
issue
of,
that
I
would
say
of
pricing
and
I
guess
that
is
true
in
any
market.
I
think
pricing
is
Jght
and
will
be
Jght
because
there
is
enough
money
out
there
looking
to
get
involved.
So
the
challenge
is
pricing
the
asset
relaJve
to
a
holding
period
that
might
be
required
and
on
incomplete
projects,
I
think
there
is
a
good
opportunity
in
incomplete
projects
because
many
people
who
do
not
want
to
take
on
that
risk
but
the
challenge
there
is
geang
the
project
at
a
price
where
it
can
be
completed
at
a
value
that
makes
sense
relaJve
to
new
construcJon
that
is
being
sold
at
substanJal
discounts.
Brecht
Palombo:
Right,
so
what
would
you
say
if
you
are
just
going
to,
if
you
had
a
barometer
out
there,
what
is
your
feeling
on
just
sort
of
the
state
of
the
market
today?
Bob
Thomas:
Yeah,
well
what
I
would
say
is
probably
not
anything
new,
this
has
all
been
reported
and
speculated
about
in
the
papers
but
the
residenJal
market
seems
to
be
on
its
way
at
least
to
working
out
its
problems
whereas
the
commercial
market
seems
to
be
just
at
the
beginning
of
the
process.
Brecht
Palombo:
Sure.
Bob
Thomas:
We
have
heard
this
before
that
the
property
downtown,
suburban
property
elsewhere
bought
at
low
cap
rates,
very
low
cap
rates,
highly
leveraged
now
seeing
declining
occupancy
in
rents
resulJng
in
a
drop
in
value,
equity
is
wiped
out,
in
some
cases
mezzanine
financing
wiped
out.
These
fundamental
problems
have
generally
not
yet
been
worked
out
as
banks
have
been
able
to
extend
maturity
dates
and
have
been
able
to
ignore
loan
to
value
covenants
so
the
result
is
a
growing
number
of
owners
who
are
hanging
on
to
their
property
but
no
longer
have
equity
in
it
and
this
will
eventually
shake
out
but
the
situaJon
of
course
varies
geographically,
this
said
in
south
Florida
I
think
they
are
probably
a
liLle
further
on
in
working
out
the
issues
because
the
situaJon
there
is
just
so
much
worse.
7 of 9 Tuesday, October 27, 2009
8. Brecht
Palombo:
Right,
so
lets
talk
about
the
shaking
out,
if
you,
and
I
am
going
to
ask
you
to
look
in
your
crystal
ball
there
and
maybe
if
you
could
tell
us
what
you
see
out
there
and
what
kind
of
Jmeline
maybe
12
or
18
or
24
month,
what
does
the
future
hold
from
your
perspecJve?
Bob
Thomas:
Well,
there
has
to
be
the
shakeout
of
commercial
real
estate
and
that
is
probably
given
maturity
dates
we
know
are
out
there
in
2010,
11,
and
12
that
is
probably
when
that
begins
to
happen
and
I
do
think
there
will
be
conJnued
opportuniJes
in
other
areas,
residenJal,
hospitality
although
I
think
the
compeJJon
for
these
assets
will
grow
over
Jme.
Brecht
Palombo:
Okay,
well
that
is
awesome
Bob,
I
want
to
thank
you
for
coming
on
the
call
today
and
for
talking
through
all
the
stuff
for
me
and
I
know
there
is
a
lot
of
people
who
are
visiJng
the
site
who
are
engaged
in
their
own
shiD
and
sort
of
trying
to
get
their
arms
around
how
to
tackle
the
new
environment
that
we
are
in.
I
do
not
know
if
there
is
anything
that
you
would
have
that
you
would
say
to
those
folks?
Bob
Thomas:
Well
thank
you
for
the
interview
and
I
want
to
congratulate
you
on
your
terrific
new
website,
it
is
very
good
at
laying
out
which
banks
are
dealing
with
what
troubled
assets
and
you
are
able
to,
there,
get
a
lot
of
informaJon
that
is
otherwise
not
found
in
one
place
so
nice
job
on
that.
Brecht
Palombo:
Okay,
well
I
appreciate
that
Bob
and
that
is
it,
that
is
the
end
of
our
call
and
I
thank
you
so
much
for
being
on
here
today
and
I
know
you
and
I
will
see
each
other
out
there
in
the
market
as
we
are
bouncing
around
in
some
of
these
deals
but
it
was
awesome
having
you
on.
Bob
Thomas:
All
right
Brecht
thanks
a
lot,
see
you
then.
Brecht
Palombo:
Thanks
a
lot
Bob.
8 of 9 Tuesday, October 27, 2009