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Last week’s GlobeSt.com Quick Poll asked readers to pick the best distressed asset playing field: dog properties or trophies? While only 39% voted for the former, 61% threw their weight behind the latter. Michael Fasano, regional manager of Marcus & Millichap’s New Jersey office, talked to GlobeSt.com about why the answer might not be so clear cut.

“I really don’t have a black and white answer…trophy versus dog. It varies depending on the product type, as well as the investor mindset. I don’t think we’ll see a whole lot of class A, trophy properties having distress.

“In the multifamily world, the distress we’re going to see will be in some of the urban areas…deals that were overleveraged, deal that were under-managed and deals that are now experiencing vacancy issues. Some people might define that as a dog, but for people who own and invest in the C apartment class and are prepared to work the building and manage it up, so to speak, this could be a really strong opportunity. I really don’t see a whole lot of distress, at least in our market, in the class A and B apartment assets.

“This changes a bit when we talk about development deals that were built for condominium sales and are now fractured. For instance, a 30-unit project with five or six sold units might see the balance being rented. But the situation is different because these rents are needed to support construction loan and financing. This project really could be an A or B asset because of the finish work.

“When you look at the office market, the issues remain the same in 2009 as they were in 2008–it’s just another year of significant vacancy in the marketplace. And as a result of that significant vacancy, whatever cash reserves might have been on hand are eroding. So whether it’s an A, B or C asset, they’re all kind of feeling the same pressure. Even in the case of buildings that are experiencing 90% or 95% occupancy, many of those tenants are talking about renegotiating leases or releasing some space back to the landlord because they’ve reorganized their staff. With New York City losing 60,000 jobs in the month of December and New Jersey down 16,000, we’re talking about 75,000 to 80,000 people out of work in a month during which the economy typically is very robust. All of this has a trickle down effect, both on office space and retail properties.

“Some people have a strong appetite for urban apartments that are 40% vacant with a lot of preferred maintenance, in which case they can just send in their crews, stabilize the asset and really add some value 24 to 30 months from now. That’s just what certain investors do; it’s their business model. There are other very astute investors who see that same apartment not as a trophy, but as a dog and they have no interest in getting involved with an asset like that.

“I think some of the savvy investors are actually looking at acquiring notes on these assets. Banks are selling some of their notes for liquidity purposes and also because it means they don’t have to take back the hard asset. If they sell off the note, somebody else is dealing with the problem and the bank has moved on. Some investors think that the acquisition of notes may contribute to a certain amount of distress in the marketplace in 2009.

“The bottom line, though, is that it really depends on the investor. For instance, you and I could look at a property and say, ‘wow, that’s a trophy asset, it’s in Bergen county, it’s an 80% office building, it has name-brand corporate tenants…gee if we can just get another 10% of the building leased up, then we’ll have a homerun.’ But others might say, ‘I don’t want to go near an office building. With all the negative job numbers coming out, the sky is falling and it can only get worse.’ It’s up to the investors as to how they define the trophy or the dog. But I do think one of the things we’re going to see this cycle around that was a little different than the last cycle–in the late 1980s/early ’90s–is that there’s an appetite for investors who normally just acquire hard assets to really give a long look at buying and acquiring notes.”

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