Kearny Real Estate Co. of Los Angeles and its joint venturepartner, TriGate Capital of Dallas, recently acquired a vacant74,000-square-foot flex! research and development building in theRancho Bernardo submarket of San Diego. That purchase is a primeexample of why commercial real estate observers say that shortsales in a growing number of cases represent the preferred way outof a distressed asset for buyers, borrowers and lenders. Kearnypaid $6.8 million for the 74,000-squarefoot R&D building,according to partner John Bragg, who notes that the building soldfor $11 million in 2006. The purchase price represented 68% of theoutstanding loan balance, and the new owners plan to invest $1.8million immediately to renovate and reposition the property, withreserves set aside for future tenant improvements.

To Kearny, the deal represented "an opportunity to acquire awell-located, quality asset at a very attractive price ," accordingto company vice president Jason Rosin. He says the property is in asubmarket that "has bottomed out and should be one of the first torecover when the economy begins to improve."

For both the borrower and the lender, the short sale representeda way out of what could have been a much more protracted solutionif the asset went into foreclosure. That, according to experts ondistressed assets, is one reason that short sales are gainingpopularity and the pace of such deals is accelerating. If thelender and the borrower can come to an agreement on who is coveringthe deficiency on a short sale, "then the short sale can be prettyquick ," says Hampton Beebe, senior vice president of BocaRaton-based ARA Florida. ARA recently represented Prestige BuildersGroup, the former owner of272 condo units in the Olivine at theTownship Condominiums in Coconut Creek, FL when Forest PropertiesManagement of Newton, MA bought the condos in a short sale.