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WHAT’S THE BEST DISTRESSED ASSET PLAYING FIELD?

Last week’s GlobeSt.com Quick Poll asked readers to choose the best distressed asset playing field. A total of 61% of voters responded that “trophies” were the better playing field, versus 39% that responded “dog properties” were better. Michael Fay, president of Coral Gables-based Colliers Abood Wood-Fay, has formed a distressed group that spends much of its time working with banks in reviewing portfolios and strategizing. He tells GlobeSt.com his view of the playing field.

“There’s a saying that if it’s a foreclosure, it’s a good listing, no matter type of product it is. However, assets have to be priced right, and hopefully have seller financing. Dog properties or trophies are within good playing fields right now. You’ve got to take the business you can get, within good reason. The problem is people don’t know where the bottom is, so they’re still gun shy about pulling the trigger. If they believe there’s value or that there’s upside potential, that’s the property they’ll go to, no matter what type.

“There’s always a host of buyers vying for the trophy properties, yet even back in the RTC days there was always a buyer for the dog properties, which will also happen today. There are some trophy assets that are being foreclosed on, but they will sell at a discount. The question is, how much of a discount?

“Regulators are now pushing banks to foreclose and take properties back. Unless they need capital, banks are going to stop selling notes and foreclose on assets, sell them and get a higher price than if they had sold at a deep discount. A lot of banks are trying to sell their notes and are getting offers of 30 and 40 cents on the dollar. Instead of taking them, they will foreclose and sell for 70 cents on the dollar. Then they’ll rebook back the reserves and refinance the same properties. The great news is that money is coming because banks are going to finance their own REO.

“The key is to act quickly and have enough cash available, or be ready to sacrifice a couple of years return on your money, because it’s not going to get better for at least two or three years. There will be great opportunity to make buys for the next two years, but we don’t see property appreciation for the next three years so you have to have some staying power.”

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