Distressed Asset and Debt Management in Today’s Economy

NEW YORK CITY—The debt markets are flush with plenty of liquidity and there’s plenty of equity but people are starting to be a little more careful, says Steven Schultz, Newmark Knight Frank’s executive managing director, capital markets. The interest rates are going up but he hasn’t seen that truly affect the market yet.

At NKF, Schultz works both with conventional, and distressed deals—those that are troubled but offer higher yields. In bundling or selling one-off distressed deals, this includes sub-performing as well non-performing loans, and portfolio sales with funds and debt funds that have bought distressed notes over the years.

External events can affect the distressed asset and debt market. Referencing Hurricane Maria, Schultz says, “Puerto Rico suffered tremendously last year and now we’re seeing some reinvestment back into Puerto Rico.” He’s working on a real estate owned portfolio sale, using an auction platform to help clients more efficiently sell the assets.

Schultz comments that overall real estate and finance are going strong.“People are reinvesting. People are re-doing certain assets that need to be repurposed,” he says pointing to the strength of the industrial market. He acknowledges retail real estate has been taking a hit. Nonetheless, although people talk about a recession in the future, after having been through three economic cycles, Schultz is not spotting any black swan event.

He predicts the residential condominium market in New York and Miami as sectors where there will be more opportunities to sell debt. “I definitely think the condo market has cooled off big time, here and in Miami,” says Schultz. “The saving factor for both markets is when you would buy a condo in both of those markets you would have to put 50% down, not like when the market previously crashed and people had only at times 5% or very little deposit down. This was really hard on the developers, which put them into default.”

In the distressed market, his team takes the deals to market where they have an extensive investor base and run a sales process. “It’s not rocket science. There is no secret sauce other than knowing the markets you are selling in,” says Schultz. His team collaborates with local brokers with boots on the ground to understand the markets. It boils down to fundamentals: the real estate, the location, the market, and what the asset is worth based on changing dynamics.

“With any kind of distressed deal it’s all about relationships,” he concludes, noting his firm has worked extensively with banks, servicers and debt funds. “In the commercial mortgage backed securities world, there are a lot of different players that have control whom we deal with,” he adds.