NPLs Selling at Rock-Bottom Prices

Bottom feeders are picking up mortgages on non-performing income properties for as little as 10 cents on the dollar, a group of real estate writers meeting in Austin, Tex., was told. While the "rule of thumb" for re-pricing assets is at 40-60% from peak values, hotel notes are being marked down to 80-90% and those on some retail properties for even less than that, said Rich Siegler, senior managing director of Pathfinder Partners, San Diego. Mortgages on retail projects "in places like Las Vegas that should never have been built—we call them 'Monuments to Stupidity'—are being written down 90% or more," Siegler said at a conference sponsored by the National Association of Real Estate Editors. Pathfinder Partners was formed in 2006 to buy loans on "unusually high-risk" income producing properties, loans, said Siegler, which "tended to be underwritten at lofty expectations." Jeff Friedman, co-chief executive of Mesa West Capital, Los Angeles, a non-recourse lender that has amassed a capital base of more than $1.5 billion to lend to troubled owners and borrowers, hit the same note, saying that "lofty expectations not based on reality" are the main reason commercial real estate finds itself in distress. Likening "too much leverage" to cancer, Friedman told the journalists, "When you start hearing 'new paradigm' or 'new new,' that's when you should start heading to the exits." David Steinwedell, co-managing partner of Stoneforge Advisors, Austin, said the current down cycle was unavoidable. "Commercial real estate is a business of seven-year cycles and five-year memories. And once the train gets going, it's hard to stop."