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Distressed Asset Sellers Still See Need to be Active

The management team at Synovus Financial Corp. decided to be an aggressive seller of troubled assets after taking a look at the bank’s balance sheet and seeing what was coming up the pike.

Kevin Howard, its chief credit officer, told attendees at a National Mortgage News conference on distressed assets in New York that the company was sitting on a heavy concentration of Southeastern real estate, particularly Florida and Georgia, and felt it needed to move assets. It has been disposing of assets in several different modes, including auctions, bulk sales and individual sales, and continues to do so on a quarterly basis.

It will do so until it gets to a point, Howard said, where it feels maybe it shouldn’t have sold that asset in the previous quarter.

In selling assets Synovus looks at two things, he stated. Half of what it sells is what it can get the best price on. Another 20% is the where the collateral has no chance of improving in value. Selling this stuff is “pretty painful.”

Eugene Weil, the chief executive of Milestone Advisors LLC, said banks are selling because they have to keep up with the influx of distressed assets, but they have limited capabilities and limited resources to manage them. Other issues involved in selling are related to capital and regulatory pressure.

Weil said sellers are having difficulty disposing of small-balance commercial loans. This is because there is very little conformity among these assets.

As a buyer of distressed assets, Pete Barkey, the senior managing director of Roosevelt Management Co., said there are “a lot of nickels” being left on the sidelines along the way in the default management process.

Buyers need to have a lot of tools on hand to resolve these assets. The goal is not to have to spend a lot of time or money in the resolution process. Therefore, Barkey said, buyers have to do their due diligence.

Another buyer of assets, Jon Daurio, the chairman and chief executive of Kondaur Capital Corp., said there are six things that a buyer can do with a nonperforming loan: take title to the property, resell it as is, keep the note, modify it, do a short payoff, or a refinance.

What his company does different from the others is that it runs metrics on those six strategies from the time it does due diligence through the end of the process. It constantly calculates and recalculates the net present value on all six strategies.

Buyers have to be dynamic and keep recalculating the NPV throughout the process. For example, in 16% of the cases, Kondaur takes the property through a deed-in-lieu of foreclosure transaction. It is a win-win for both the company and the borrower. For Kondaur, it gives it speed in resolving the problem asset, he said.