John Chirhart and Lou Suski of the Gaughan Companies/CORFAC provide a market commentary of “Distressed Real Estate Sales Trends” for the Minneapolis and St. Paul market in the March issue of Heartland Real Estate Business.
…Turning our attention to distressed real estate sales trends, we can say that the recession negatively impacted all types of Minneapolis/St. Paul banks (local, regional, national) and all commercial real estate product types. A wide range of real-estate-owned (REO) assets have sold in recent years, including single and multi-tenant office buildings, industrial buildings, convenience stores, office condos, residential condos in bulk blocks, raw land, a campground, a historic warehouse, hotels – just about everything.
While most of the insurance companies exited the Minneapolis market years ago, one of the national insurance companies did repossess a large Class A office project last year and sold it to a local investment group for a dollar more than the loan – which was $110 million. The group that lost the property paid $186 million for the asset in 2007. In other words the new owner acquired it for 59% of its earlier trading price – which is consistent with our estimate that properties on average are trading for 60% of values before the downturn.
Which Area Has Seen the Greatest Turnaround?
The greatest amount of commercial REO sales since the recession has occurred in the suburbs. While many properties sold for a fraction of their replacement value early in the sales cycle (which began in earnest in 2011 – not 2009 or 2010), banks are no longer wasting time on low-ball offers by bottom feeders. As banks have stabilized their cash positions and cleared their books of some of their troubled assets, they have less pressure and motivation to sell at deep discounts. Some banks are more aggressive than others in moving non-performing assets off their books and it is highly situational.