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Opportunities Are Emerging to Buy Commercial Real Estate Loans

By Jim Gillespie | July 21, 2010

Many people including myself had expected to see a floodgate of foreclosure activity on commercial properties by now, but these opportunities haven’t emerged yet. The game has changed and lenders aren’t foreclosing as they have been in previous recessions, and instead they’re doing workouts with borrowers and extending the due dates on their loans…even when the property along with the financing on it are upside down.

But this is really just postponing the inevitable, as more and more properties have now transitioned into being upside down, and the lenders are recognizing they’re going to have to tackle this problem head on.

What’s emerged because of this is the opportunity to buy lenders’ notes on properties without actually buying the properties themselves. This is because the lenders see that eventually they’re going to have to foreclose on many properties, and finding an exit strategy that will relieve them of this process is starting to sound very good to them.

Imagine the following scenario…You’re a lender with a portfolio of $200 million in non-performing real estate loans. And in looking down the road, you realize that having to go through the foreclosure process from beginning to end on every single one of these loans will be a major, major headache for you.

So a white knight rides up on a horse in front of you with an interesting proposition…The knight wants to buy your entire portfolio of $200 million in non-performing loans, relieve you of any further obligation of having to chase the borrowers on these loans, thereby saving you from having to go through countless bottles of aspirin for all of your headaches along the way.

This is one example of what recently happened with a lender actually holding a portfolio of $200 million in non-performing loans. They couldn’t resist this opportunity, and the buyer of the entire portfolio just couldn’t resist the deal. And the buyer ended up paying just $1.4 million for the entire portfolio!

“How could this be?” you may be asking yourself. “How could a lender let go of $200 million in non-performing loans for only $1.4 million?” Well the answer has to do with fractional reserve banking and how lenders create money for borrowers in the first place, and that’s a subject that I recommend you read about in another article that I’ve written by clicking here. But know that sometimes making great deals like this one for investors is exactly what lenders will do.

And in follow-up, here’s the best part—the broker involved in the transaction told me that the buyer of the portfolio sold it to another investor, doubling his money and selling the portfolio for $2.8 million, while agreeing to provide all the loan servicing for the loans for the new investor through his own servicing company. This relieved the second investor of any headaches in having to chase these borrowers for the money himself, and he was able to buy this $200 million portfolio for just $2.8 million.

So recognize that these opportunities are now coming available within the marketplace, and if you’re a broker with investors who are interested in these kinds of opportunities, the coming months could become a very interesting time to both find and capitalize on these kinds of investment opportunities.


If you’re interested in one-on-one coaching to take your commercial real estate brokerage business to the next level, click here to send me an E-mail.

"I have had so many responses to the marketing letter I’ve mailed out that you wrote for me. Sellers have called in on properties they would like to sell, and the total dollar value of these properties so far is $56,000,000.00. I am blown away by the success of this program. One seller has an $8,000,000.00 property that we may already have a buyer for. Thank you, thank you, thank you."

Lisa Godley Gilstrap
Lee & Associates

Click here to see more testimonials from my coaching clients.

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