Banks are not in the property management business, but waves of foreclosures increasingly are forcing them to become landlords. Some Roanoke commercial real estate companies say they are coming to the rescue.
In the midst of a tough economic environment, two companies are throwing a lifeline to a rising segment of their business and one that they expect will escalate through next year -- properties in financial trouble.
Poe & Cronk Real Estate Group this week formed a separate division to handle distressed real estate sales. Also this week, a new agent and former bank consultant, assigned to communicate directly with financial institutions, started work at Hall Associates.
A property is considered distressed when the owner cannot make loan payments.
As businesses battle a tough economy and more properties fall into foreclosure, real estate agents are getting creative. Many local commercial agents already work with lenders to help manage commercial and residential real estate, find investors, or in some cases help an owner avoid foreclosure.
Demand for these services has increased in the past year as the nation's economy travels a rocky road to recovery, agents said. Coordinating this kind of work through a separate division now is necessary, said Dennis Cronk, president and CEO of Poe & Cronk. He expects his firm's workload of troubled real estate to climb substantially through the next 24 months.
"We know that there are a number of properties that are not necessarily performing," Cronk said. "Ultimately, they're going to become properties on the market."
Nationally, many commercial firms have expanded distressed real estate services to adapt to the economy's cycles, said Kenneth Riggs, who is president and CEO of Real Estate Research Corp., a Chicago-based research and consulting firm.
At least one industry group, the National Association of Industrial and Office Properties, added an expert panel discussion to its October annual meeting to answer questions and give advice to agents about selling distressed real estate.
The number of troubled commercial assets in the United States has jumped 145 percent this month, from the same time last April, according to Real Capital Analytics, a global research and consulting firm. That is 9,659 troubled properties, compared with 3,929 in 2009. The total volume is $200 billion, from $72.8 billion last year, the firm reported.
Comparatively, there were only 158 troubled commercial properties in Virginia, with a total volume of $3.2 billion in April. Real Capital Analytics did not have 2009 data to compare with the April 2010 figure.
In the Roanoke Valley, retail and industrial businesses have been dealt the hardest financial blows, putting their properties at higher risk for default, real estate agents said. This is a domino effect sparked by economic pressures, bankruptcies and empty storefronts and buildings.
"If the business itself is not performing, that affects every asset it has," Cronk said.
Still, compared with larger cities, the Roanoke Valley's commercial market is not in as dire shape. Office spaces largely are filled and occupancy remains stable. That's because there has not been a glut of new buildings in this area, real estate agents said.
Poe & Cronk reported that overall office occupancy dropped only 1 percent in 2009 from 2008. Its annual survey covers downtown Roanoke and the south and north suburban districts.
Even so, real estate companies say they're taking advantage of the growing number of distressed properties across Southwest Virginia to turn their business up a notch. The companies would not disclose specific clients that are in financial distress.
Thom Hubard, a senior vice president at Poe & Cronk, will head the company's new special assets services group and divide the workload of distressed real estate among the company's agents. Poe & Cronk also works with a pool of investors interested in buying troubled properties with the ultimate goal of helping "financial institutions to take these properties and make them profitable," Hubard said.
Another commercial real estate firm, Thalhimer, has had an asset resolution team for distressed sales since 2008, even before the Richmond-based company opened its Roanoke office last year.
Hall Associates recently hired Boyd Johnson, a former bank consultant with a finance background, to work with financial institutions that end up managing foreclosed real estate, said Roger Elkin, an executive vice president at Hall Associates.
Johnson also will help negotiate with banks on loan terms with clients whose five- to seven-year loans on commercial space come due. Banks have stricter loan standards, and they're less willing to take risks if a property is generating lower income, Elkin said.
With Johnson, Elkin added, "It helps to have someone who understands banking from the banking side."
Jenny Boone | Roanoke Times | April 15th, 2010