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There is a lot of talk in the industry today about distressed assets. We are starting to see some of them pop up around the country, but when will the deluge take place that the industry has waited for, and when will that money everyone talks about “sitting on the sidelines” finally suit up and get in the game? Marsha Bass, vice chairperson and chief operating officer of Portfolio Property Management, answers some of those questions in a conversation with GlobeSt.com. Her firm, which does as its title suggests, operates assets on a national scale without having a brokerage component. Portfolio Property Management currently operates a variety of different assets totaling five million square feet throughout the country in seven states.

GlobeSt.com: When do you see firms starting to buy up some of these distressed assets?

Bass: As far as acquisitions are concerned, it will still be down the road a bit. There’s a direct correlation with the money available and the level of acquisitions that are going on in the marketplace. The tightening of the credit market obviously had an impact. From a timing standpoint, it is beginning to loosen up a bit, and by the end of the year, or certainly early 2010, you’ll see folks making more acquisitions.

GlobeSt.com: So are the credit markets keeping people from buying more so than firms waiting for asset values to hit bottom?

Bass: People are looking for the bottom of the market. From a timing standpoint, people are wondering if they hold out a little longer if they’ll get a better deal. It’s a balancing act. Like anything else, it’s never a clear-cut reason. It’s never one or the other. But it certainly makes sense to look at an acquisition or an asset on its own merit and not try to necessarily predict what’s going to happen because you’ll never make a decision that way. If you look at a transaction and the fundamentals are right for your acquisition needs, then you should make the transaction.

GlobeSt.com: As a property manager, are you getting many requests from banks to operate assets they might have taken back?

Bass: It’s not happening for us, because our portfolio specialty is on commercial assets. The banks have taken back a lot of single family. So that has been coming back. We’re not seeing it with commercial properties yet. We do anticipate, by the third and fourth quarter of this year that the commercial assets will return. It’s beginning to trickle in. There are some, but it’s not the deluge of the single family. Coming down the pipeline will be the commercial assets.

GlobeSt.com: Are there any particular sectors that you see going to the banks, or is it more of a property-by-property situation?

Bass: As far as distressed property types, the retail assets have the largest exposure. Retailers are one of the first ones getting hit. Those assets would be some of the first ones to come back. Failed condos and apartments have the potential also for being the next-largest group of troubled assets. I put those in the higher-risk categories, and hotels would be third.

Geographically, the West Coast has the largest number of distress, and that would be followed by the Southeast.

GlobeSt.com: What are your thoughts on the federal government getting involved in commercial real estate?

Bass: They absolutely will play a large role in managing these distressed properties. They already have identified prime contractors, it’s getting subbed out. It’s just moving in line with what’s happening in the marketplace. First it’s single-family homes, and that’s where the TARP [Term Asset-Backed Relief Program] money is being spent, because that was the first wave. As the second and third wave happens, we’ll get to the commercial assets. If you talk to folks in the marketplace, things are being set up, and those programs are being put in place. They’re waiting for those commercial assets to be returned.

GlobeSt.com: How are fundamentals holding up? Will they continue to deteriorate for a while or are you seeing improvement?

Bass: For us, the fundamentals are exactly what is going to give us an advantage. It really is returning to fundamentals that are going to help these troubled assets. It’s going to be things like looking at tenant retention, making capital improvements. For us, it’s how can we add value to these assets? They either can be sold, or improve the value on the banks’ books, so they can be sold at a higher value. The only way you can do that is by returning to the fundamentals, providing things like making sure they have a sound infrastructure, landscaping its kept up, tenant occupancy is maintained and those are some of the fundamentals that can help add value to some of these assets.

That’s what we do. It may sound very simple, but it’s different than a maintenance strategy. Oftentimes that’s the role that property managers are filling in the marketplace, that they are maintaining the value of the property. For us, we have to add value to the property.

Some of the ways we add value is with operational efficiencies. We will actively look for national vendors, so we are generating economies of scale, and then I can push those savings down to a property level and reduce the operating costs on services I provide to our clients.

GlobeSt.com: What are some hurdles the industry needs to get over to get through the recession?

Bass: Now is a good time to continue to make inroads in property management. It’s not about the hurdle down the road, it’s: What are you doing today to leverage your strength? You have to be cognizant of where you are today, and you can create opportunities in the current environment. How are you going to create opportunities for yourself in the environment where you find yourself today?

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