Last month I posted a link to a Wall Street Journal article by Writers Carrick and Lingling Wei entitled.
It outlines a new and different strategy that many lenders are taking with real estate that they end up taking back … or in many cases are “given” from property owners who for whatever reason can’t or won’t service their debt any longer. The idea is that the lender will not move to quickly fire sale their new holdings – known in the industry as REO’s (Real Estate Owned). In many cases the REO properties have a very high vacancy ratio and would only yield a resale price that is equal to a fraction of the debt. With certain segments of the commercial market being soft, the lender would rather hold on to the property, hire a good leasing and management company and work to increases the value with new leases and maintenance. Then eventually once stabilized the property will be sold.
Here in Frederick County, we have one such high profile example in the Frederick Corporate Park (formerly known as i-270 Tech Park) between the Francis Scott Key Mall and MD Rt 355. About 5 years ago, according the Rick Farren, Commercial Broker with McShea & Company, Inc., Artery Development Company, LLC. purchased eleven of the 18 office buildings in the park containing about 450,000 square feet. Over the last 25 years a number of well known tenants have made the park their home. Among them the largest was Wells Fargo occupying about 60% of the space. Well, when they relocated to their new offices in Riverside on the northeastern side of Frederick, a huge hole was left to fill.
Rick and his team have worked hard to fill the space, with the addition of U.S. Department of Veterans Affairs and some smaller tenants. This effort reduced the vacancy factor to 35% … but they still have a ways to go. Recently Artery who paid about $165 per square foot with considerable leverage, decided that it couldn’t cover the debt load any longer, leaving the bank holding the bag. So instead of moving to aggressively get the property off its books, the lender is continuing with McShea to fill the vacancy gap.
I have visited the site often as a broker, and it shows very well. With a viable and diverse group of businesses, there are some great opportunities for prospective tenants.
Now, while the line “Extend and Pretend” may sound a bit like smoke and mirrors, personally this is what I consider a very solid strategy for many lenders, as in the case of the Frederick Corporate Park. … and thank you, Rick for the update! Good luck with the leasing effort!