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Commercial Property Receivership Challenges and Opportunities

Brecht Palombo and Greg Trotter of Commercial Building Consultants

PODCAST

TRANSCRIPTwww.distressedpro.com

Brecht:Goodmorning.ThisisBrechtPalombowithwww.distressedpro.comandthanksforbeingonthelinetoday.TodayIhaveGregTro>erofcommercialbuildingconsultants.HeisbasedinOrlando,Florida.HehasbeenoutthereworkingwithlendersanddevelopersformorethantenyearsandthereasonwhyIhavehimonthephonetodayisbecauseIhavebeengeDngalotofrequestsfrommembersforinformaFononreceivershipandonpropertypreservaFon.SoGreghasbeeninthatbusinessformorethantenyears.Heisdoingdealsalloverthecountryandsowearepsychedtohavehimonthephoneandsowithoutfurtherado,Greg,welcome.Howareyoudoing?

Greg:Reallygoodthanks.Thanksforcalling.ThisisanissueandanareathatisreallynearanddeartomyheartandIfullyenjoythisareaoftheindustryisassetmanagementandassetpreservaFon.

Brecht:Yeah.

Greg:Istarted31yearsagoincommercialconstrucFonandIfoundthatthelasttenyearshavebeenreallyeithermonitoringassets,preservingassets,orturningaroundproperFesandprojectsforvariouslendersanddevelopersanditisalotoffun.Wesayitaroundhereaswegetpaidtoeaticecream.EverythingisgeDngbe>erinOrlandoandthatisthereportthismorning.

Brecht:Wellthatisgood.So,31years,thatmeansyoucamethroughsortofourfirstmajorrealestatecrunchinthelate80sand90s.Tellmeali>lebitaboutwhatyouweredoingthenandmaybeali>lebitabouthowtodaydiffersorisitthesame.

Greg:Sure.IthinkthatIhavearealinteresFngperspecFvebecauseIgotoutofschoolin1978andIwasoutthereduringthe1980to1982financialdistress.Youareinoneoftheareasofthecountrythatwasreallyhithard.ThatwouldbeNewEngland,northernNewYork,NewYorkarea,aswellaspartsoftheMidwest.AndsinceIwasinconstrucFonanddevelopment,theonlythingavailabletodoatthatpointinFme,theonlyprojectsyoucouldworkonwasgovernmentprojectswheretherewasasubsidizedhousing,elderlyhousing,mediumincomehousing,butbasically,whatitwastheonlythingcomingoutofthegroundduringthatperiod.TheonlythingthatcouldgetanymoneywassubsidizedhousingprojectsandsothatisallIwasdoingthenwasthismulF‐familyproductsoIgottobecomereallycomfortableandfamiliarwithitbackthen.Fortunatelywekindofclimbedoutofitin1982.Andthenwhathappensfromthereisyougofromstudenthousingandthenyougotoindustrialandcommercialand

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officeandyougothroughthesevariouscyclesintheconstrucFonindustryandyoufollowthemandyouallofasuddenbecomeexpertinallareasandherewearetodayinanothercrunch.

Brecht:Right

Greg:Asfarashowtheycompare,backthen,formeitdoesnotdifferawholelot,butbelievemethechangesthathaveoccurredbetweenthe1980to1982andwherewearenow‐thisoneismuchmorepervasive.Thisisahugefinancialcollapseinthecountryandworldwideandithasaffectedeverybody.Idonotcareifyouareanairline;youarearetailer,apublisher,orajailbondsman.Yourbusinessisdown.FunnyenoughbutIamtalkingeverybodyhasbeenaffectedbythischangeinmarket.Anditisstaggeringbecausebefore,inthe'80‐'82,itwasdevelopers,realestatebanks,somehigh‐tech.Thereweresomeweaknessesinsomeothersectorsoftheeconomy,butitwasnoteverybodylikeitisinthisoneandsothisisabiggy.ThisistheworstIhaveeverseenit.

Brecht:Right,wellIamhearingthatalot.Tellmeali>lebitaboutwhatyouweredoingduringtherunupjustunFlsortoflate'90sor2000throughIguess2007or2008whenwesortofpeakedandrealizedwewereinthecrunch‐whatwereyoudoingthen?

Greg:Thisisthegreatthingisthatasaresultoftheproblemsinthe'80s‐'82,whatdidwelearn?WelearnedthatprojectsweregeDngfundedthatwereinfactnothappening.LiterallypiecesoflandweresiDngthereandbanksweregeDngapplicaFonsforpaymentforprojectsbeingbuiltwheretheywerenotbeingbuilt.Whathappenedasaresultofthatismyjobwascreated.Now,firstofall,IwentthroughthatcrunchandIwasreallyhurthard.Betweenthe1980andthe'82crunchandthenthe1990crunch,ImeanIwaswipedoutandIthinkifyoulivethat,youreallyappreciateyourjobwhenitiscreatedasaresultofthat.Somyjob,dayinanddayout,forsay1999throughsay2007wasdoingduediligenceandwhatisthat.Thatmeansifyouarebuyingadealership,apartmentorhotel,arestaurant,apartmentcomplex,orawholeporaolioofthem,youneedtoevaluateallthephysicalaspectsoftheproperty.Thatmeanstheroof,mechanical,electrical,plumbing,pipedrainage,parking,lighFng,thatsortofthingandthelenderneedsthatandbytheway,theulFmateownerneedstoknowwhatisgoingonandtheyneedthecapitalplanningbudgetofwhatheneedstodoforthenexttwelveyearsduringthetermoftheloan.Wedothatalldaylong.SowewoulddowhatwecallpropertycondiFonassessments.Alongwiththatyoudoenvironmentalsite

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assessmentstomakesurethereisnoissuewiththepropertyfromnearbygasstaFonsandthatsortofthing.

Brecht:Sure,21‐E.

Greg:Iamsorry‐‐?

Brecht:21‐Estudies?

Greg:Exactly,sowe‐hundredseachyear.Alongwiththat,whathappensis wealsodoalotofbankdrawswherewearemonitoringconstrucFonasitiseithersomethinggeDngrenovatedorbuildinggroundup.Andallofasuddenwearethishugedatacruncherofknowingwhatthepricesofeverythingthatisgoingon.wearetalkingtovariouspartsectorsoftheindustrybecausewearejustsiDngonthesitetalkingtoowners,buyers,contractors,developersandwearedoingthisallaroundthecountry.Whywouldwedoitallaroundthecountryisthateventuallylenders,iftheyreallywanttoknowthehardtruthofwhatisgoingonwiththeprojectandthatthereisnotgoingtobeanissuewithitgoingtopermanentfinancing.Theywantsomeonetherewhocares,picksuptheli>lenuances.Isthereanissue?Istherenotanissue?Isthisthinggoingtobeasuccessfulproject?Isitgoingtomakemoney?Wearetheeyesandearsforthelendersoutinthefield.

Brecht:Okay.

Greg:Itisawonderfuljob,becauseyougettobeinthetrades,gofigureoutwhatisgoingonandyouhavegreatcostdataofwhatisgoingonmonthtomonthtomonthonall16divisionsofconstrucFon.

Brecht:Sothatbringsyouuptothecreditcrunch.Andasweknow,therearelotsofchangeshavehappenedsincethenjustintermsofwhoisabletogetmoneyforwhat.Andsowhathaschangedforyouorwhatareyoudoingdifferentinyourbusinessnoworwhatarepeopleaskingyoutododifferentlythanyouweredoingbefore?

Greg:WellithasreallydramaFcallychanged.Imeanwearetalkingpeoplejustshakingtheirheadsandwonderingiftheirphoneworks.Goingbacktothe‐thereisevendefaultingoodFmes.Thereisgoingtobeproblemswithvariousassetsthatlendershaveandsincewewereonthefield,ourbootswereontheground,wewouldgoinandworkoutvariousprojectsforlenderswhothedevelopergotputinprisonorlectheprojectorjustdidnotgetitorhadaproblemwiththecontractor.Wedovariousworkout

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situaFonswherewewouldjustgeteverybodytoholdhandstogether.Wewouldgointoprojectsthatliterally,onefamoushereinOrlando,wheretheprojectjustsortofsatthereinthehighdriveareaanditwasreallyquiteaneyesorehalfcompletedandwewereassignedtotakecareofthatprojectforalenderoutofNewYorkasitwentthroughbankruptcyandsoforth.Itiskindofafunstory.LendersusuallydonotendupontheposiFvewhenapropertygoestoREO.Butallsaidanddone,becauseofthemarket,becauseitisadifferenterathanrightnow,thelendergetsallitsfees,getsfullproceedsback,andendsuptotallywholeincludingallfeesfromlegalfees,interestfees,lateinterestfees,onandonandtheyalsosaythathelpedmycareerbecausethatwas1999‐2000.foralendertoendupwholeonaprojectthatwenttoREOpre>ymuchmeanstheythoughtIwalkedonwater.Fromthere,youhaveonesuccessleadstoanotherleadstoanotherandsoitwasalotoffuntosortofputthevariousduediligenceweweredoing,thebankdrawworkweweredoing,andhelpinglenders,developersthroughproblemFmesontheirprojectinthegoodFmes.WhathappenedtheniswhenthebrakesgothitandIamgoingtosayaroundAugustof2007,whenitwasreallyobvioustous,weweregoingintofull‐blownREOwork.GiveyouanexampleofoneprojectwheremywifeandIpackedupthehouseandmovedontoaprojectinsouthFloridabecausetheselendersdidnothaveanyconfidencewithregardtowhatthedeveloperwasgoingtodo.Sotherewasaforbearanceagreementsignedandthekeyswereturnedovertomeandthelenderswantedthethingcompletedandwelivedontheprojectandcompletedit.

Brecht:Wow.Thatisfunny.

Greg:Itwasalotoffun,becauserightinthemiddleofBiscayneBayanditwasatoughassignment,butsomeonehadtodoit.

Brecht:Iamsorry.IwasjustgoingtosaythatisagreatsegueforwhatIwanttotalkabout‐isali>lebitaboutthemechanicsofreceivership.AndIknowyouareprobablynotalwaysgeDngmovedintoaproject,butwhathappens‐atwhatpointdoestheassetmanagersayIhavetogetGregonthephoneandthenacertheymakethatdecision,kindofwalkusthroughwhathappens.Whatisinvolved?Whatisthegoal?Whatisthetypicalassignment?

Greg:Thegoodnewsistheyallvary.Theyreallydoandwhathappensisanassetmanagerseesaproblemloanandheismonitoringitandallofasuddenitlookslikethedeveloperisnotgoingtopayanymore,haslectown,whateveritis.Hegetssomesortofideathatheisstuckwiththisproperty.Whathappenswiththatfileisthenitislookedoverandquite

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honestly,whatweseeisthatalotofthesefolksthatarestuckwiththissituaFonhavehadnoexperiencewithREO.Theyaremovedfromanotherpartofthebank,underwriFngyouknowmaybewheretheloanoriginated.Theyhavenoclueofwhatisgoingonorhowtoreallyapproachthisandtheyhavesomanyofthesefilesthat‐Ihaveassetmanagersthatexcusethemselvesforalltheboxesintheirofficenotfiles,butboxesoffilesofREOsituaFons.Sotheyarereallyovercomeandtheywanttoknowsortofwhatisoutthereandwhattheyhave.Thatisthepuzzleyougettosolveisthatokay,wheredowereallysitwiththecontractor,withliens,withtheauthoriFeshavingjurisdicFonmeaningthebuildingdepartmentandthehousingdepartment,whomever,andwhatdowehavetodotorightthisship.Whatdoesitcosttocomplete?Whatweretheproblems?Whydidtheystop?WasitaproblemwithunforeseencondiFonsorwasitsimplytheyranoutofmoney?AlotofFmesitisnotthatprojectthatistheproblem.Itwasanotherprojectthatreallysuckedthelifeoutofthedeveloperand/orlenderorwhateverandFppedtheboatover,ifyouwill.Soweofferthatsortofsocsellservicewherethelender‐ourclientsdrivethebus,meaningtheycancallupandsaywhatdowehaveatsuchandsuchanaddress.Or,theycandoitfullyengagedwhereitistheirlawyerwhoputsusasacourtappointedreceiver.AndwhatthatwouldmeanisyougoinfrontofajudgeandsayMr.Judge,thisparFcularindividualhasaloanonsuchandsuchproperty.Theyhaveobviouslylecthepropertydefaultedforthelasttwelvetotwenty‐fourmonthsonthisloan,anditisjustsiDngthereaswastedproperty,isanissuewithcrimeandsafety,blah,blah,blah.Whathappensisthejudgeeitheragreesordisagreeswithit,buttypicallytheydowhenitgetstothatpoint.AndthenCBC,CommercialBuildingConsultantsislistedasthecourtappointedreceiver.Andourresponsibilityistomakeitsafe,makesurenoonejumpsinthepool,walksoffthepier,ifyouwill,analyzesthebuildingitselfandseeswhatneedsithastomakesureitispreserved.Andinsomecases,whenwedoacosttocompleteonanasset,itlookslikeyouareakissawayfromgeDngthisthingcompletedandthenyouhaveamuchmorevaluableassetwithX‐Y‐Zamountofinputfromthebankasfarasproceedsyouhadsetasideforthisloananyways.Wecangetthebuildingstabilizedandupandrunningandmaybeyoucansellit,leaseit,orwhatever.Weworkasconsultants.Ourjobistotakecareofthebanktopreserveormaybeevenimprovetheassetandhelpthemout.IsitacrossfromthesefolksalldaylongandtheyjustlookatmeandsayIhavetenmorefilesonmydesktodaythanIdidyesterdayandIamali>leovercomehereandIdonothavealotofroadFmetogoaroundandcheckallthis.ThereismoreandmoreofademandforthisasFmegoeson.

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Brecht:Right,soitsoundslikemostoftheFmeyouwouldbeengagedpre‐foreclosure.Iknowatleastinmyneckofthewoodswouldtypicallyhappenswhencommercialpropertyisindefaultisthatasthelendermovestoforeclose,thereisabankruptcyfiling.AlargepercentageoftheFme,70%to80%oftheFmethedebtorwillfileaChapter11,IshouldsaytheownerwouldfileaChapter11.IsthattheFmeframewhenyougetcalledin?

Greg:Well,itallworkswiththeloandocuments.Whenyousignaloanasadeveloperforowningapropertyordevelopingaproperty,thereisanumberofkicksintherethatallofasuddenputsyouindefaultwhetheritisnotpayingonFme,notreporFngonFme,notgivingtheinformaFonasfaraswhatyourrentrulesareyourrevenue.Thereareanumberofwaysthatyoucangetintodefaultanddependingonhowaggressiveandhowthemarketis.Thebankwilleithersitbackorignoreproblemslikewhatishappeningrightnow,and/orinthegooddays,theyjustpulledtheplugandsayallright,Mr.Developer,youareindefaultandwearetakingthepropertybackandwearegoingtofixit.ItisalldependentuponthemarketandthesituaFonandreallytheexperienceoftheassetmanagerthemselvesandwhoisstandingabovethemwithadirecFve.ThatwouldalsobetheFed.

Brecht:Right,butitsoundslike‐‐

Greg:SomeFmestheFDICiswhatdrivesthebus.

Brecht:Itsoundslikeyouarecalledinfairlyearlythough,assoonasthepropertyisatsomelevelofdefault,theywantyoutogetahandleonkindofwhatisgoingonoverthere.Isthataccurate?

Greg:Thatisthebestway.Tobehonestwithyou,thatisnotaccurateatall.itisoneofthosethingswhereifyoucalleduslastweekbaby,youwouldbeinalotbe>ershapethanyouarethisweekanditissotrue,becauseletusgobacktothescenarioofthetwo‐yearscenario.Letussaythat‐andwearetalkingalargebankthateverybodyknows.Certainlyalargeregionalbankhadbeenholdingontoapropertyandnotpullingusin,maybeayearlate.TheycouldhaveeasilydonethisalongFmeagowhenthemarketwasbe>er.Itwasmoreinterestintakingarisk.Therewasmoreequityouttheretoplaywith,thereforetheycouldhavecleanedtheirslateofthisparFcularassetbuttheydidnotwanttoacknowledgeit.Theydidnotwanttosaythatthisisanon‐performingloan.ThesearetheeffectsoftheiroperaFonanditishardtobeintheirposiFonrightnow.Oneoftheworstthingsintheworldasfarasajobtodo‐go>abea

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banker.Theyhavetoacknowledgetheyhaveanissueandthenworkwithitandiftheyhavetoexpendsomemoneyintoitandthatisdifficultwhenyouhavealotofdefaultedloans.

Brecht:SowhatyouareseeingnowandIamhearingthisfromalotoffolkssFll,islendersdelayingthepaying.

Greg:Oh,absolutely.WehaveproperFesthattheyhavenotseenpaymentsonforalongFme.TheseareoperaFonalproperFes.LetussaymulF‐familyorhotels,orrestaurantsorwhatever.Andtheyhavenotseenanyrevenuecomefromthatloanforayearortwoorwhatever.TheyareallowingtheborrowertositthereandoperatethatpropertyandpaytheuFliFesandkeepitgoingbecausethatmeanstheydonothavetoexpendallthateffort.ReallythebestpersontotakecareofthatpropertyistheonethathasbeenoperaFngit.Sorightnow,theyarekindofkickingthecandowntheroadandsortofgoingokay,wearegoingtoignorethatbecausewehavealotofotherproblemsrightnowandatleastthatpropertyishot,warm,andoperaFonal.Itismovingalong.Wearenotgoingtodealwithhim/herunFllaterandseewhathappens.ThatisthebigquesFon.Whatisgoingtohappen?

Brecht:OneofthequesFonsIhadfromamemberwithoutgeDngtoospecific.Idonotwanttogetintoratesoramountsoranythinglikethat,buthowdoyouchargeforyourservices?Itisaretainertypeofthingorisitbasedon‐Iguessjusttellushowyoufigureyourstructure.

Greg:Well,sure.ReallyallwehaveisFme.Thatiswhatwedo.WelookattheFmewearegoingtobeinvolvedwiththeproperty.Thereisalotofrisk.Wewillpossiblehirefencepeople,roofpeople,onuptofull‐blowntotalrenovaFonofapropertysoweknowthattherewouldbeacosttocompleteifthatisrequired.WealsolookatourFmeandeffortthatwearegoingtoputintothepropertyandsortofgivethemanideaofbudget.GeDngaretainerisareallygoodideaandIwouldnothavesaidthatayearagoortwoyearsago,butwhathappensisthatwegettoanassignmentandlikesomepeoplehavesaidtome,Gregitislikethecavalryhascome.YoucanimaginethepropertysiDngfoulforayearortwoandallofasudden,zip,zip,trucks,fences,ladders,allsortsofthingshappeningonaproperty.Andtheygomygod,itislikeovernightthisthingisgoingcrazyandtheyareusually‐theneighborsarereallyhappytoseesomeacFvityonapropertyandthenwehavefoundthatifwedonotgetaretainer,insomecaseswearenotgeDngpaidfor120ormoredayslater.SoIhavealltherisk.Ihaveallthismoneygoingoutandyouwouldthinkabankcouldcutyouacheckforwhatyouaredoingtocovertheirriskandit

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turnsout‐.Thisisaheads‐upforanybodydoingthisishowareyougoingtogetpaidandisitgoingtobeonaFmelybasis?Becausewatchthis.LetussayIhaveonepropertywhereaboatsankoffinacanalrightinfrontoftheproperty.ItwasFeduptothedock.Whoaretheygoingtocall?Theyaregoingtocallthecourt‐appointedreceiver.Whatismyliability?Well,thatboatthatsomeonearbitrarilydecidedtohooktothisdockcouldbeuptotenthousanddollarsadayforenvironmentalissues.IamlookingatalotofliabilityandforthebanknottotakecareofmebecauseIamtakingcareofthemisratherodd,butyoureallyneedtofigureout‐.Andyoucouldbeinfrontofaseniorvice‐presidentandheisengagingyoutobeareceiverbuthehasseverallayersabovehimthataredealingwithalotofproblemsandissuesandcontrollingthepursestringswhereyouthinkyouaredealingwiththeguythatcanauthorizeacheck.Inthiscase,allbetsareoff.Itis2009‐2010now,newdeal.Hecannotcutthechecksoyouneedassurancesyouaregoingtogetpaid.

Brecht:Wow.SoyoumenFonedaseniorvice‐president.Letmejustaskyouali>lebitaboutthat.Firstoff,whattypesoflendersorbanksareyouworkingwithmostly?AretheylocalornaFonal?Kindofgivemethelandscapethere.

Greg:Locally,weprobablyworkwiththreelendersthateveryoneisfamiliarwithintheOrlandoarea.Weareworkingwithafewlargeregional banksandalotofourstuffhastodowithprivatebanking.PrivatebankingiswhereitisnotaconvenFonalloan.Privatemoney,ifyouwill,isputuptodoaprojectsoitisahigherinterestrateandusuallyhigherrisk.Sowhatisgoingtobeaproblemchildinamarketlikethiswouldbetheprivatebanking.Andquitehonestly,theyaremoreinteresFng.Theyarenota7‐11comingoutoftheground.TheyareamulF‐familywitharenovaFoncomponentandathisandathat.Wedoalotofworkoutsintheprivatebankingarenadayinanddayout.Butitisprobablyabout80%privatebankingandthen20%justconvenFonaleitherlocalorregionalbanks.

Brecht:Okay.SowhatisatypicalFtleforsomebodywhoisyourdecision‐makingcontactatalocalorregionalbank?

Greg:Specialassetsservicer,thatsortofthing.Usuallyitisaspecialassetmanageristheguyyouwanttotalkto,istheguyorgalthatyouwanttogetinfrontof.whatIhavefoundisanditisinteresFngisthattherecouldbefourpeopleinanofficeandaspecialassetmanagementofficeandtheyarejustgeDngdelugedwithfilesandboxesoffilesandtheydonotevenknowhowtocomeupforairandtheydoneedhelp.Theyhavenot

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acknowledgedinsomecasesorhavego>entheauthorizaFontogetthehelp,buttheyaretheoneyouwanttomaketherelaFonshipwith.

Brecht:SowouldyousaythatthereisaparFcularassettypethatisyourfocusoryourspecialty?

Greg:Well,youknow,thereclearlyisanditisreallysomeFmesthemostdifficultandthatismulF‐family.ThroughmyenFrecareer,youwouldliketothinkthatyouaregoingtomoveontodifferentassettypesbutIhaveworkedonbanks.Ihaveworkedonalotofcardealerships.Ihavedonealotofhotels,butyearinandyearout,themulFtudesofmulF‐familyworkthatwedoisjustincredibleanduptoandincludingthisoneprojectthatwedidwhichwasaporaolioworth1.2billion.Anditwasbasically297differentapartmentcommuniFesbetweenOrlandotoMichigananditishardtonotdrivedownthestreetandrunintooneofthatporaolio.ItismulF‐family,mulF‐family,mulF‐familyandthenlikethisweekIworkedonanaircrachangarandallofasuddenyouareworkingonretailbuildingandthenbacktomulF‐family.Itispredominantlyapartments.Peoplehavetolivesomewhere.

Brecht:SowhatdoyouseeasthebiggestchallengefacingIguesstwogroups?OneisthemulF‐familyinvestorandsecondwouldbelendersonmulF‐families.Whataretheyfacingtoday?

Greg:Well,therewasagreatarFcle.Iamnotsureifyousawit.WehavetheOrlandoBusinessJournalhereinOrlandothatispredominantlyfocusedoncommercialrealestateandthenyoulookaroundandyoulookatthevariousotheronesandthereisaNashvilleBusinessJournalthatcameoutyesterdaywithagreatarFclebyEricSnyderandtheheadingis'Analyststelldeveloperstoplaygolfin2010.'Nowthatkindofsaysitall.Imean‐andyouwouldlaughbutIknowpeoplewhoareliterallydoingthatwheretheyhavehadagreatexperiencemode.TheyshouldbegeDngmoneybutthereisnomoneyouttherefromconvenFonallendingsopeopleareliterallypackingupandcomingtoFloridaforextendedlong‐termwintertospringvacaFonsandIknowthatforafact.IamsiDngrighthere.SowhatishappeningisthereisnomoneyouttherewhatsoevertodoanythingexceptformulF‐family,Fannie,Freddie,FHA,HUD‐typesituaFonsandthatistheonlymoneyoutthereperiod.Ifyouarefocusingondeveloping,theonlythingyoucandoismulF‐family.Youcannotbuyretail.Youcannotbuyacardealershipunlessyouhavemoney.ThatiswhatisironicaboutthissituaFon.Ifyouhavecash,youcanbuyapropertyfor50%,40%oftheactualcostofduplicaFngthatproperty.Imeanthereare

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hugeopportuniFesoutthere.Iwouldencourageanyonewhohascashtogetintothemarketandyouhavealotofpower.

Brecht:WhatwouldyousaytothebanksspecialassetsgroupswhoaresiDngherelookingatdefaulFngmulF‐families?Istherestuffintheirporaolionowor‐‐?

Greg:Icantellyouthereisapropertyrightdownthestreet,480units.ItwaslikeaB‐property,ifyouwill.Ithad32offers.ThatwasinOctober.Thirty‐twooffers,soyouaretalkingaboutathirtymilliondollarprojectandithad32offers.Callit22legiFmateoffers.ThereisalotofdemandoutthereforpeopletobuymulF‐familysoifyouhaveonethatissomehow‐.Ihavebeentoprojectsinthelastfourweeksthathavehad62%occupancyinapartmentcomplex.Thatisnotgoingtowork.Youarenotgoingtocutit.SothereareopportuniFestheretoturnaroundanassetlikethatbygeDnggoodmarkeFng,goodpropertymanagement,getthatthinguptowhereitcanshowsomerevenue,andthenyoudefinitelycouldmarketthatandthereisanappeFteoutthereforgroundupandthereisanappeFtethereforpurchasingexisFng,operaFngmulF‐familyprojects.

Brecht:Movefast,getthepropertyintosaleablecondiFon,andthenlistentothemarketitsoundslike.

Greg:Absolutely.Thereisalotofanalysisthatgoesintothat.ThisparFcularlocaFonwearetalkingaboutisareallyinteresFngsub‐market.Thereisaschoolnearbythatisinahugegrowthmode.Youlookateachoneindividuallyandifyouarelookingatanypropertyforlong,howeveryouaregoingtogetthemoney,thekeythingrightnowisrevenue.Whatistherevenuebeingthrownoffbythatproperty?Whatareyourexpenses?Whatistheincome?Canyoupaytheloan?People,likeIsaid,theyneedtolivesomewhereandtherearesomeareasthatarereallytoughtofillapartmentcomplex,buttherearealotofgreatonestoo.Thereisclearlyopportunityoutthere.

Brecht:So,ifyoucouldjustuseyourcrystalballandtelluswhatyousee,12or24monthsfromnow,orifnotthen,whendoyouseeareturntoposiFvemovement.Justtelluswhatyousee.

Greg:WeareinposiFvemovementrightnow.LetuslookattheresidenFalside.WehavealotmoreacFvitythisyearthanlastyear.WehavearesidenFalcomponentwithinourfirmandwehaveseen30%increaseinvolumethisyearthanlastyear.Soyoukindoflookatthe

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residenFalmarketandsaywhatisgoingtohappentothecommercialmarket?Itisgoingtodotheexactsamething.Wearegoingtoseein2010alotmorepressurefromFDICforlenderstodumpproperty.Thereisahugeamountofequityonthesidelinesthatisgoingtocomeinandsweepsomeofthisstuffup,becausetheyunderstandthattheopportunityisnow.Sowearegoingtohavesomebankfailuresnextyear.WearegoingtohavealotofconsolidaFon.Wearegoingtohavearealgreatheadline,breakingnewsaboutthis,that,andtheotherthingthataregreattosellpapersasfarasfailures.AndthenwearegoingtocomeouttheothersideandIwouldsaythatinprobably24monthswearegoingtoberampingupanditwillbepre>ymuchbacktonormal.RightnoweverybodyisreallyconfusedastowhatouradministraFonisgoingtodowithtaxeswithanything,withsmallbusiness.AndwhatIseeandwhatIsawisthateveryoneinthelendingareaanddevelopmentareawasfrozenforseveralmonthsormaybeevenayearwheretheycouldnotdoanythingbecausetheyreallydidnotknowwhereanythingwasgoingacerthatfinancialcollapse.NowweareseeingclearlyandIpetitatNovember2009,westartedtoseeaturnaroundwhereeveryoneismoreaccepFngofthemarket,moreaccepFngofthesituaFon,andwehavetomoveon.Thatdemandsforbusinessessuchasmedical,medicalsupply,medicallabs,thingsthatarenotmovingalongtheyarepurchasingbuildings.TheyarestarFngtoinvestanditisgoingtogothroughindustrysectorstogetbacktowhereweareallcomfortableagainandyouhavetoremember‐.ThatisonethingIcantellfrommyexperiencesisthatwhenyouareinthegoodFmes,youfiguretheyarenevergoingtoend.WhenyouareinthebadFmeslikeweareinrightnow,youneverseethatthereisgoingtobeanylightattheendofthistunnel.Trustme.Itisgoingtoturnaround.AnditalwaysdoesandthatisoneofthegreatestthingsabouttheU.S.ofA.isthatthisisacapital,economy.Wearedriventopursue,toexpand,toinnovateandifwelosethat,itisasadthing,butIdonotseethat.Ithinkwearegoingtobefinein24to28months.

Brecht:Wellyeah.Ilikethatforecast.Whoareyoulookingtoworkwithornetworkwithoutthere?Whowouldyouliketohearfromorwhocouldbehearingfromyou?

Greg:Wedoreallywellwithpeoplewhogetit.TheyarelenderswhoseeopportunityandtakecareoftheirproperFesandimprovingtheirassetsorstabilizingthem.PeoplewhowantcreaFvedecisionsanddirecFonandiftheywantustograbholdofapropertyandsteeritintherightdirecFon.Itwouldbespecialassetmanagers.Itwouldbedevelopersthatarehavingali>lebitofaproblemwiththeproperty.Weareproblemsolvers.Weareali>lebouFquefirm,butwehavehugeresources.Anyonethatcando298

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apartmentcomplexesintwomonthsforpurchasecancertainlygettheirhandsaroundwhateveryouthrowatusandwehavehadwelloveradecadeofexperiencedoingit.IjustwenttoMobile,Alabamatoseeadeveloperandheneedsmoney.Heneedsequityforareallysweet,fantasFcprojectswhicharemulF‐family,HUD‐backed,privatelender.Wells FargoisreadytodotheconstrucFonfinancing,readytodothepermanentfinancing,rateslineduptobuythissortofstuff.Hejustneedsaninfusionofequity.WearekindofsteppingoutsideofourboxhereandlookingatopportuniFeslikethattohelppeopleouttogetthroughthis.WeneedmorepeoplethatarereallyinteresFng,challenging.Wedoreallywellwithtoughclients,but‐

Brecht:Plentyofthatouttheretoday.

Greg:Right.Anybodywhoisreallyinterestedinsolvingaproblem,theyshouldcallusandwewillcomeupwithsomesoluFons.

Brecht:Allright.Thankssomuchforbeingonthecalltoday.Anybodywithatonofproblems,ha‐ha,callGregTro>erofCommercialBuildingConsultantsbasedinOrlando,Florida.Itwasreallygreathavingyouhere.IhopethatweansweredalotofquesFonsforfolkswhowerewonderingwhatisreceivershipandwhatdoIdonextandlookforwardtosomemoreofthisandlookforwardtotalkingtoyouagain,Greg.

Greg:IappreciateitandIenjoyedtalkingtoyou.OurphonenumberhereinOrlandois407‐447‐5881andyoucangotoourwebsitewww.commercialbuildingconsultants.com

Brecht:Okay,awesome.ThankyouGreg.

Greg:Haveagreatday.

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