COVID-19 Threatens the Validity of Real Estate Appraisals in Multiple Sectors, Cautions A&G Executive

But structured sales can give asset-based lenders real-time data on values in education, office, hospitality, retail, industrial and multi-family, writes Jeff Hubbard in ABL Advisor column.

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A&G Real Estate Partners

Aug 27, 2020, 08:43 ET

MELVILLE, N.Y., Aug. 27, 2020 /PRNewswire/ -- Structured sales can give asset-based lenders actionable insights into the value of real estate in the COVID-19 era, advises Jeff Hubbard, a Senior Managing Director at A&G Real Estate Partners, in a column for ABLAdvisor.com.

"Whether conducted in or out of court, structured sales can be an effective workout solution," writes Hubbard, who has 28 years of experience across all real estate sectors. "They offer lenders protections that are particularly important in today's volatile real estate marketplace."

Hubbard: "Whether conducted in or out of court, structured sales can be an effective workout solution. They offer lenders protections that are particularly important in today's volatile real estate marketplace."

Hubbard: "The College of New Rochelle was a difficult-to-value asset, because its future use was unclear. However, the top three bids all came in within $1 million of each other. It was an absolute demonstration to secured creditors of what the property was worth at that time."

In the Aug. 24 column (Certainty in an Uncertain World: Structured CRE Sales Give Lenders Real-Time Data), Hubbard cites the example of a newly built student-housing complex to illustrate how the crisis can trigger questions about how much an asset is actually worth.

"The appraised value of that building was derived from the pre-pandemic assumption that it would be part of a fully functional college town—a place where students would be crowding into classrooms, sports venues, bars, restaurants and the like for most of the year," he writes. "How do you put a number on the value of that building in a world of social-distancing and draconian capacity restrictions or outright shutdowns?"

Much the same can be said of offices, shopping centers, hotels, freestanding restaurants and other properties that were appraised prior to the crisis, Hubbard writes. His column provides a basic overview of the advantages structured sales offer to ABL lenders in today's highly uncertain marketplace.

In these sales, Hubbard explains, bidders agree to the terms—including due diligence items like rent rolls, environmental reports, preliminary title commitments and management agreements—up front, as opposed to post-contract. "Especially in a time of uncertainty, handling due diligence in this way gives bidders a higher degree of confidence," Hubbard writes. "It's a step that bolsters the likelihood of achieving maximum pricing."

These sales happen faster because the bidders have all agreed to the same set of terms as put forth by the seller—a big difference from conventional deals where disputes over terms can grind everything to a halt late in the game. Structured sales typically result in all-cash offers within 60 to 75 days, Hubbard notes, with sellers exercising greater control over both the process and timing.

In one type of structured transaction—a Section 363 bankruptcy sale—the secured creditor enjoys the right to wholly or partially cancel that borrower's debt in exchange for those assets—no cash required—in a credit bid. "Acting as a qualified bidder in this way enables lenders to provide price support for structured deals even as they avoid the potential costs (in both time and money) that are so often associated with commercial foreclosures," Hubbard writes.

He ends the piece by providing a detailed look at how secured creditors benefited in the structured bankruptcy auction of the main campus of the College of New Rochelle in New York's Westchester County. Hubbard's firm marketed the 20-building campus in 2019. Ultimately, the campus sold for $32 million—on an all-cash, non-contingent basis—explains Hubbard, whose team boasts 80-plus years of experience in structured sales.

"The College of New Rochelle was a difficult-to-value asset, because its future use was unclear. However, the top three bids all came in within $1 million of each other. It was an absolute demonstration to secured creditors of what the property was worth at that time."

The full article is available at:
https://www.abladvisor.com/articles/19119/certainty-in-an-uncertain-world-structured-cre-sales-give-lenders-real-time-data

About A&G Real Estate Partners
A&G is a team of seasoned commercial real estate professionals and subject matter experts that delivers strategies designed to yield the highest possible value for clients' real estate. Key areas of expertise include occupancy cost reductions, lease terminations, dispositions, structured real estate sales, real estate due diligence, valuations, acquisitions, and facilitation of growth opportunities. Utilizing its marketing knowledge, reputation and advanced technology, A&G has advised the nation's most prominent retailers and corporations in both healthy and distressed situations. The firm's team has achieved rent-reduction and occupancy-cost savings approaching $6 billion on behalf of clients in every real estate sector, while selling more than $12 billion of non-core properties and leases. Founded in 2012, A&G is headquartered in Melville, N.Y. and also has an office in Chicago. For more information, please visit: http://www.agrep.com/

NOTE TO MEDIA: Jeff Hubbard is available as a resource for your coverage of structured sales across a broad range of real estate sectors. To arrange interviews, see media contacts at end of release.

Media Contacts: At Jaffe Communications, Bill Parness, (732) 673-6852, [email protected], or Elisa Krantz, (908)-789-0700, [email protected].

SOURCE A&G Real Estate Partners