ASSET MANAGERS MAKE THE BEST OF DISTRESS

Distressed assets have become a common ingredient in many asset managers' portfolios. For Sansone Group, a St. Louis-based commercial real estate firm with approximately 20 million square feet of space under management, about half of new business over the past few years has involved distressed properties, says Timothy Sansone, a company principal.

"We always focus on the tenants first," he says. "You have to stabilize the tenant base on distressed properties." Next in line of importance is to clean up payables to vendors, landscapers, roofers and the other parties that previous owners may have neglected to pay in the months before a default and foreclosure.

Few lenders have the skills or time to implement leasing or property improvement strategies, explains Pat Jackson, founder and CEO of Sabal Financial Group. "The banks aren't really organized to take a long-term investor view of real estate," he says. "It's just not in their charter."

Based in Newport Beach, CA, Sabal is a diversified financial services firm with nearly $4 billion in assets under management, most of which is US commercial property and real estate debt. The company has been buying up portfolios from banks.

To make it easier for a lender to unload an entire portfolio containing the commercial real estate and loans that Sabal is ultimately after, the company is prepared to acquire non-realestate assets as well, Jackson says.

"We can take care of an entire balance sheet in a single transaction and clean up everything they want to get rid of, so they can get back to banking," he relates. That means Sabal will purchase portfolios that include single-family mortgages mixed in with commercial and industrial assets, or even loans for cars and airplanes. "Therefore we have to have expertise in managing that."

Jackson says he expects to find plenty of opportunities to acquire REO through the first quarter of 2014, if not longer.

Sansone indicates that distress is simply a part of asset management today. "We'd love to have a growth economy, but this is the nature of the market, it's the nature of our business," he says. "We can operate whether it's a distressed market or a growth market."