While the long-anticipated tidal wave of opportunities indistress has so far been a trickle as debt holders have shownthemselves willing to do workouts, "there's some evidence that nextyear will be a different story," said Michael Buckley, director ofthe asset repositioning and turn around strategies certificateprogram at the University of Texas at Arlington. Buckley and otherexperts convened for a recent GlobeSt.com webinar made the pointthat we ain't seen nothin' yet. The webinar was entitled: So YouStill Want to Play in Distress.

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Although the commercial real estate sector as a whole isgradually recovering from the 2008 capital markets implosion, "Thereal downturn hasn't yet occurred" in terms of distress coming ontothe market, observed John D'Amico, president-elect of theCommercial Real Estate Finance Council.

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Approximately $1.2 trillion in commercial real estate loans willcome due in the next few years amid a still-shaky recovery infundamentals, D'Amico pointed out. "That tells me that we stillhave a huge hump to get over" and assets will become available as aresult, he added.

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It's not certain that the availability will manifest itself in away familiar to veterans of the early 1990s downturn, though.Unlike the RTC-driven bulk sales of last time, "a tremendous amountof resolution is taking place at the asset level," commented StaceyBerger, EVP at Midland Loan Services. However, he too predictedthat we'll continue to see an acceleration of assets into themarket.

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This shift in circumstances may compel investors to rethinktheir criteria, noted the discussion's moderator, Sule AygorenCarranza, editor in chief of REAL ESTATE FORUM and multifamilyeditor for GlobeSt. com. To that end, Berger noted that there havebeen opportunities lately in recapitalizing borrowers.

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And while Marathon Asset Management's Ron Bernstein recalledthat previously "we were of the belief that there would be moredeal flow," he charted the opportunities his company has beenfinding across the distressed landscape. Marathon has beenoriginating new loans by buying old ones and refinancing them, aswell as acquiring distressed notes with the ultimate goal ofcontrolling the real estate, said Bernstein, senior managingdirector and portfolio manager at Marathon.

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He noted that core assets have been in "absolutely crazy demand"and financing is available for these deals. Bernstein wondered,though, whether the supply-demand gap on these assets wouldeventually lead to a pricing bubble.

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Other topics in the hour-long discussion included the challengesof restructuring and the kinds of opportunities that FDIC's bankclosings will present. "Restructuring is not just for thespreadsheet jockeys," Buckley commented, while Bernstein pointedout that just because a restructuring is in progress doesn't meanthe loan will leave the special servicing rolls. As for FDICopportunities, Buckley noted that the volume of bank takeovers bythe agency thus far in 2010 has been running at twice that of lastyear.

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As CMBS loans from the market's previous peak continue to gointo special servicing, a securitization revival has gotten underway, widely referred to as CMBS 2.0. However, Berger expressedskepticism that the revival translates into a next-generation modelof CMBS. "We're a lot closer to 1.2 or 1.3 than 2.0, based on thetransactions we've seen," Berger said. Thus far, those deals havesuggested a return to the type of securitizations seen in the late1990s, with an emphasis on smaller assets in secondary and tertiarymarkets. One improvement seen with next-gen CMBS has been thetransparency of investor reporting packages, D'Amico commented."The emphasis will be on disclosure," he said.


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