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CENTURY CITY, CA-A regional California bank has named commercial real estate investment banking firm George Smith Partners to market a $42 million package of distressed assets including both loans and REO. David Rifkind, principal and managing director of George Smith Partners, tells GlobeSt.com that the package is unusual in today’s market in that the seller is “a very strong bank” that is offering to provide financing for qualified buyers of the assets and in most cases is able to provide fee title ownership to buyers who prefer to acquire the properties rather than the loans.

Rifkind describes the loans and properties as “some of the most salable assets we’ve seen yet” in the distressed market. The portfolio includes whole loans and REO in Malibu and Laguna Niguel, CA as well as Las Vegas. The Laguna Niguel site features freeway frontage that was at one time slated to be an auto dealership; the Las Vegas asset is an industrial subdivision where 98% of the land development has been completed.

“The mandate from the seller is to get the highest price possible for that particular day in the marketplace, which is a very realistic approach in today’s market,” Rifkind says. Because the bank is in a strong financial position, Rifkind explains, it has more flexibility on pricing than weak institutions do when marketing troubled assets. He explains that weaker institutions have less flexibility on pricing because, if they mark down assets to get closer to the prices that prospective buyers are offering, it requires them to mark the balance of their portfolio to market, which could render them insolvent.

Weaker institutions also are unable to offer financing when they sell distressed assets, he points out. By contrast, in this case, “We have a strong institution that understands the assets and is more than willing to lend on them again to a borrower who is qualified,” he points out. The seller in this case has the flexibility to sell at or closer to bid prices because “They have a strong enough capital position where it would not be self-destructive to do it,” Rifkind adds.

Rifkind notes that George Smith Partners has been turning down assignments to market distressed assets from weaker banks because there is such a large spread between the bid and the ask prices that the weaker institutions can’t come down in price to meet the bid. The only assignments that GSP is taking are “from sellers who are realistic and have the ability to sell at the best price on any given day in the marketplace,” he says. The large gap between bid and ask prices will change over time, he says, but for now “We are in the early stages of this market repricing itself,” he says.

Rifkind says that, unlike weaker banks, the seller is “motivated by opportunity rather than fear” and is selling the assets as part of a strategy designed to clean up the portions of its portfolio that are not performing so that it can focus on expanding. “If you don’t have an impaired capital position, there has never been a better time to be a bank than right now,” he says. “The demands for money far exceed the supply, and the cost of borrowing is very low.”

The portfolio is being marketed by GSP’s Lender Services, Asset Sales and Advisory Group. The Century City-based firm formed the unit last year to market and sell lenders’ assets and to offer services such as portfolio evaluation, workout advice and other strategies designed to help lenders maximize the value of their assets.

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