Commercial Real Estate Short Sales a Win for Everyone
Short sales can work well for lenders, borrowers, brokers and investors when the borrower and property are conducive.
Lenders can often achieve a better recovery in a properly marketed short sale than they can foreclosing or selling the note. Properties sell for a higher price when the seller cooperates by providing buyers access and deliverables. Buyers having access to property history, leases, income and expense records, environmental reports and entitlements take some of the unknowns out of the purchase. If the property does not have liens or other financing, and chasing the borrower for a deficiency is not the best option, we have seen many lenders increase recoveries when the property is properly marketed.
Bull Realty recently sold a Midtown Atlanta block involving an insolvent developer, a regional bank and a community bank. In exchange for release of liability, the developer aided in the marketing of the property. The lenders recovered millions more through the short sale than they would have achieved by selling the note or by foreclosing on the property. The closing was much faster versus the foreclosure route, since the buyers had access to the developer’s entitlements and knowledge of the property. Since the lender was never in the chain of title, the lender also had less risk than it would have had in the foreclosure process.
Note the interesting distinction: the broker was marketing the property for the property owner/borrower, but the lender has the only equity.
One of the best practices we have seen is for lenders (after proper release from the borrower) to have some say in who and how the property is being marketed, receive copies of offers, and receive marketing updates from the broker. If the lender is releasing the borrower from liability, the borrower should release the lender from ‘lender liability’ and be willing to share the marketing process with the lender. The lender is more comfortable proceeding with a short sale, given that they can suggest or approve who is marketing the property and know how the process is going. Remember the saying: he who has the money makes the rules.
The borrower should work proactively with the broker to market the property; present the property well, including all deliverables; and counter offers as normal to achieve the best price possible. Be sure to add a proper contingency to the contract related to approval by lender.
When the property and borrower are conducive to short sales, they can achieve a win-win-win-win for the lender, borrower, broker and the investor.
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