While banks have pretty much taken down the help wanted signs in their branches and loan offices, there is one position that many can't fill fast enough: the commercial real estate workout specialist.
With half-built construction and development projects weighing down loan portfolios, industry analysts say banks are desperately seeking the services of workout specialists to help them get the most value for their most troubled assets. Some banks are hiring these specialists in-house, while others are bringing them in as consultants.
Carlos J. Arboleda, a practice director for the banking group at Miami executive search firm Stephen James Associates, said his firm's financial recovery group has been fielding so many calls from banks - particularly those in Florida and the Mid-Atlantic region - that it is staffing up on headhunters. "Someone who's got good knowledge of the workout process and understands specifically the CRE side and residential real estate side...that tends to be what we're most asked for on the workout front," he says.
Meanwhile, construction consulting firms such as IVI International Inc. in White Plains, N.Y., are beefing up units that provide workout expertise to banks and equity investors.
Workout specialists are in such demand because construction portfolios are deteriorating rapidly, yet many banks aren't particularly eager to charge off troubled construction and commercial real estate loans for fear of depleting capital. According to an analysis of Federal Deposit Insurance Corp. data by PaymentSource, a U.S. Banker affiliate, non-accruing construction and commercial real estate loans more than doubled between yearend 2007 and yearend 2008, to $43.5 billion.
In some cases, banks are hanging on to the loans until they have a better feel for what they might fetch in sales to investors under Treasury Department's Public-Private Investment Program. In others, they are simply holding out hope that market conditions will eventually improve.
Currently, most banks can't recoup their investments on these non-performing loans, so "the cost one has to weigh is...what is it going to take to finish it versus stopping it," says Bob Barone, director of real estate services for IVI . Lenders that opt to foreclose on incomplete projects may staunch the bleeding for a spell, but they rarely restart them, thus giving the upper hand to vulture capital funds seeking "bargain-basement prices," he says.
According to Capgemini's Craig Zander, unfinished properties today are most appealing to distressed-asset buyers who have the means and the patience to finish out projects for a market rebound. "I know of some situations where the more distressed a property, the more 'on-target' it is for in an investment group," says Zander, head of Capgemini's core banking practice.
According to Patricia Goldstein, a former Citigroup real estate practice executive and now executive vice president of credit policy at Emigrant Savings Bank in New York, some large projects will need a whole team of workout specialists who can handle everything from construction management advising, property evaluation, and restructuring terms with borrowers. That's not including "the guy whose going to finish the construction, or sell the asset or help to get it leased," she says.
Barone says IVI is now consulting with between 150 to 160 banks on various stalled ventures. For unfinished developments, he says, banks are using IVI to help determine the cost to complete a project and what problems they might face if they halt construction. On completed developments, he says his firm is being asked to handle the day-to-day management.
Among the projects IVI oversees is the Trump International Tower & Hotel in downtown Chicago, a six-year-old, still-unfinished project developed by real estate magnate Donald Trump. With the construction loans in default, the lenders, led by Deutsche Bank Cos. Americas, are picking up the roughly $50 million tab to complete the project.