Distressed Asset Mastermind Groups

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In this episode of the Distressed Property Professional’s Podcast series, Ken and I talk about: * How the Wang Towers deal went together * Differences and similarities between opportunities in the 90s and now * How to put together effective distressed assets networking groups * What banks should do to minimize their commercial real estate losses * A forecast for the future of distressed CRE opportunities

Text of Distressed Asset Mastermind Groups

Brecht Palombo and Ken Hecht Distressed Assets Mastermind Groups and More

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Distressed Assets Mastermind Groups, The 90s and Now, and

How Banks Can Minimize Commercial Real Estate Losses

Brecht Palombo & Ken Hecht

PODCAST TRANSCRIPTwww.distressedpro.com

BrechtPalombo:: Hey,goodmorning.ThisisBrechtPalombo:,andthanksforjoiningusonthiscallagaintoday.IhaveKenHecht;KenissomewhatfamousorhehadasomewhatfamousdealhereintheNewEnglandarea,calledtheWangTowerswhich,hopefully,wellhearaboutaliGlelateroninthecall.Kenisknownforhesputtogethermorethan4,000,000feetindealsforWalMartsallthroughoutNewEngland.And,beforethat,KenwasabrokeratCBRE,whereheactuallystartedandrantheirretailgroupforaPme.Ken,werepsychedtohaveyouthecalltoday.Thanksforbeinghere.

KenHecht: Yourewelcome.Greattobeonthecall.

BrechtPalombo:: And,Iknowyoureabusyguy,soIwanttojustcutrightintoit,andwhydontyoutellusjustaliGlebitaboutwhatyouvebeendoingduringtherunupprecrunch,ifyouwouldorifyouevenwanttogobackaliGlebitfurther,andgiveusacareersummarysopeopleknowwhotheyretalkingto,orwhotheyrelisteningto.

KenHecht: Wellthatllbegreat.Brecht,thanksalotforgivingmetheopportunitytobeonthecall.Basically,IwenttoworkwithCBRichardEllisatthatPmeitwasColdwellBankerCommercialin1986in1988,IwontheRookieoftheYearawardfortheNortheastininvestmentsales;Isold13buildingsmyrstyearinthecompePPon.And,thenthewheelsfell othebusin89,whichisapropos,whichwithrespecttotheWangTowerdeal

BrechtPalombo:: Right.

KenHecht: andthen,reallyaZerthat,IwenttoWhi[erPartnersforveyears,whereIbecameapartner.Andthen,basically,Iwas thelastpartnerin,andwesoldhalfthecompanytoCB;itbecameCBRichardEllisWhi[erPartners,whereIthenfoundedtheretailgroupandrantheretailgroupwhichwasreallyaveryinvestmentorientedgroup,includingBillMoylanandChrisAngelone,whoaresPlloveratCBRE;goodfriendsofmine.Then,IdevelopedaliGleclientcalled,WalMartwhileIwasthere,basedonareferralfromanoldcollegebuddyfrom20yearsago.And,basically,onceIaZerSeptember11,2001,IrePredfromthepartnership,andreallyrolledoutaprograminMaine,MassachuseGsandRhodeIslandforWalMart,andendedupdoingabout4,000,000feetforthem.But,bothmainlyacquisiPonsandgroundupdeveloping,andafewdisposiPonsthrowninthere.Thenreallyinthemid2000swestarteddoingourowndevelopment,andwebuiltdrugstores,andwebuiltshoppingcenters,anditwasreallytheeajumpingontheelephant

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approach,whereweknewwheretherewassomegreatacPvitygoing,sowewouldbuythelandacrossthestreetfromsomeeitherWalMartorothermajordevelopment,thenpopupasmallershoppingcenter.So,whatshappenedisintherunup,wereallydevelopedallthroughoutthehighPmes,andnowwereinaverylowPme.But,fortunatelyknockonwoodforus,wevepickedgreatlocaPons,andwerebasicallyverycloseto100%leased,andwesoldsomeassetsandmademoney,anditsactuallyapreGygoodstory.And,nowwerereadytojustbuyupastorm;wereloadedwithaddiPonalcapitalandlotsofexperPse,andwerereallyoutthererightnow,workinghardtoacquireotherassets.

BrechtPalombo:: Okay.Well,IwanttogetintoIwanttogetintoallaboutwhatyouredoingnowasyoureposiPoned,asalotofpeoplehavereposiPoned,buttakemeback,justforaminutethisdealIknewaboutthisdealyearsago,beforeImean,IveIvebeenhearingaboutthisdealfromanybodywhosbeeninbusinessintherealestatebusinessinNewEngland...aslongasIvebeenaround,Ivebeenhearingaboutthisdeal.And,thenIrecentlyhadtheopportunitytomeetyouatatalkIwasgiving,andand,youannouncedyourselfasthethebrokeronthisdeal,andso,itstheWangTowerdealjusttakeusbackaliGlebit,andwhatwasit,andhowdidithowdidyougetit?Howdiditworkoutforyourbuyer?And,justlayitoutforus,ifyouwould.

KenHecht: Well,itsaninteresPngstory,andIthink,fromaPmingperspecPve,itsinteresPngtonotethataswetalklateronmaybeinthecall,welltouchonhowdoesthismarketrelatetothatmarket?In1987,thestockmarketcrashed.In89,aswediscussed,thewheelsfellbegantofallothebusinthecommercialrealestatebusiness.And,itsinteresPngtonotethattheWangTowersoldin1994,whichwasgenerallylookedatastheboGomofthemarket.Thepropertywas1.3millionsquarefeet,anditsoldforvehundredtwentyvethousanddollars.

BrechtPalombo:: Wow.

KenHecht: Now,thatwasaroundthirtysomethingcentsafoot.But,whatyouhavetorememberwas:WangwasgoingtodoashorttermleasebackonthepropertyonaporPonofthebuilding.So,youdhavetheminaporPonofthebuildingfor,say,ayear,andaZerwhich,youdbeluggingthewhole1.3millionsquarefeetofemptyspacetothetuneofaboutvemillionayearoftaxandoperaPngexpenses.

BrechtPalombo:: Wow.

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KenHecht: So,itwasarealChineseredrilltotoleasethatthingupasquicklyaspossible,andyoureallydidnthavetogetthatmuchrentforit.WhatyouwanttodoiscovertheseoperaPngexpensesand,ofcourse,getasmuchrentasyoucould.

BrechtPalombo:: Right.

KenHecht: Also,inthatdeal,theactualpropertythatsoldforvehundredtwentyvethousanddollarscamewithaparkingraPoofonecarperthousandparking.YouhadanopPontobuytheremainderoftheparkingwhichwouldgetyouuptoareasonableoceparkingraPobutthatopPoncamewithasixmilliondollarpricetag.

BrechtPalombo:: Wow.

KenHecht: So,youreallyhadtothinkclearly.ThebuyerswhoboughtthatwereBrianKelly,ChrisKelly,DanDohertyandLouAlvarado;theyeachthrewIthinktheythrewtwentyvethousanddollarsinaheadforthetotalofonehundredthousanddollarsattheaucPon

BrechtPalombo:: Wow.

KenHecht: andresultedinalotofworkontheirpart.But,Ithinktheysoldprobablythree,fouryearslater,andeachmadeprobablyaroundZeenmilliondollars.

BrechtPalombo:: Geez!

KenHecht: So,itwaspreGypreGyniceleverage.

BrechtPalombo:: Yeah,thats

KenHecht: But,whathappenedis,theyalsohadrightnow,theresaNaPonalAmusementsTheatreupthere

BrechtPalombo:: Yeah.

KenHecht: so,theyhadNaPonalAmusementsTheatreintheirpocket.And,onsomeoftheexcessland,theyactuallyputthetheatre,anddidatheatredeal.

BrechtPalombo:: Wow.

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KenHecht: So,itwasaveryitwasdrivenbyhavingthistenantintheirpocket,typeofthing.

BrechtPalombo:: Right.

KenHecht: So,itsprobablythegreatestrealestatedealthatIveeverknowninNewEngland,intermsofbuyingattheboGomandsellingatthetop.

BrechtPalombo:: Right.Well,itsnotoveryet,so

KenHecht: No.

BrechtPalombo:: wellseewhathappens.

KenHecht: Thatsright.

BrechtPalombo:: Soso,youboughtthatataforeclosureaucPon,justtoclarify?

KenHecht: No,thatwasthatwasnotaforeclosureaucPon;itwasanaucPonagreedtoAetnahadthedebttheinsurancecompany,Aetna

BrechtPalombo:: Yeah.

KenHecht: and,theywererepresentedbyMeredith&Grew,andexcuseme,werepresentedAetna,andWangwasrepresentedbyMeredith&Grew.WangwasthreateningtogivethebuildingbacktoAetna;Aetnadidntwantit,sotheybothagreedtohiretherespecPvebrokers,andworktogethertoaucPonthisthing.So,itwasnotaforeclosureaucPon;itwasacoupleguyslookingthemselvesintheeyeballssaying,Whydontweworktogethertogetridofthisthing?

BrechtPalombo:: Right,soitsaconsensualsale

KenHecht: Correct.

BrechtPalombo:: Okay,allright.

KenHecht: Thatsright.

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BrechtPalombo:: ThatsinteresPngtonote.And,so,tellmealiGlebitletsmoveforward.Nowits15yearslater;howhowisthisdierent,orhowisthisthesameaswhatwewentthroughthen?

KenHecht: Ithink,duringthatperiod,therewasalotofoverbuildingthatoccurredinoce,parPcularly.And,inthismarket,wedonthaveasmuchoverbuilding.Thetheeconomybackthenactuallywasitkeptgrowing.And,oureconomy,ofcoursewevehitunemploymentratesnotseenforaverylongPmesincetheearly70s.

BrechtPalombo:: Yeah.Right.

KenHecht: So,theresadierencethere.And,IalsothinkatthatPmetheFDICandtheRTCtheytookoverassetsfairlyrapidly

BrechtPalombo:: Right.

KenHecht: andbegantocleansethemarket.

BrechtPalombo:: Yeah.

KenHecht: And,theyshutdownalotofbanks,includingouthereinNewEngland.And,theygrabbedtheseassets,andtheyjustturnedaroundandstartedsellingthem.Rightnow,wehaveaverydierentapproachthatthelendersaretaking,whichiseveryonescallingitdierentthingskickthecandowntheroad,extendandpretendontheloans.And,Ithinkthatitsastrategythatisoccurringrightnow,butIthinkitcanonlysolvesomanyoftheproblems.

BrechtPalombo:: Yeah.

KenHecht: So,Ithinkwhatsgoingtohappenisitsgoingtoitsgoingtodelaysomeoftheissues,butitsnotgoingtosolvemanyoftheissues.

BrechtPalombo:: Sure.

KenHecht: So,IthinkthatitsacompressedsituaPon;theresjustmoreandmorecompressionbuildingupinthesystem.

BrechtPalombo:: Right.Allright,wellIwanttoIwanttoaskyouaboutacoupleofthings;IknowyoureaveryacPvenetworker,andyouhavedierentgroupsandwhatnot,andIIwaswonderingifyoucouldjusttell

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usaliGlebitabouthowyoubuildyourgroups,andhowtheyfuncPon,whoyouinviteintothem.Because,oneofthethingsthatImhearingfromsomeofmymembersisthattheyrelookingfordeals,andtheyrelookingatthenetwork,andIitseemslikeyouhaveapreGyecientmachine.CanyoutalkaliGlebitaboutwhatyoudo?

KenHecht: Sure.Well,rstistobuildrelaPonshipsoveraverylongperiodofPme.So,whatyouwanttodo,Ithink,iswerevery,verygoodaboutmakingsurewehaveourcontactdatabaseuptodate;thatwehavedierenttypesofproductprospectcategorizaPon.So,wehavearound6,000folksinourdatabase,buttheyreallcodedretailbroker,owner,bankerwhatevertypeofthing.So,thatsreallyimportant,totobuildaaninfrastructure,sothatwhenthisinformaPonyouget,youcanyoucandealwithit.Andthen,onasmaller,morenetworkingbasis,whatIvedoneisinbothProvidenceandProvidence,RhodeIslandandPortland,MaineIvepulledtogetheragroupofthehighestlevelofprofessionalsinthosemarketsthatareinallintherealestatebusiness,butindierentpartsoftherealestatebusiness.So,wevegoneaheadandsetupagroupineachofthosemarketsthathasatopaGorneyrm,atopcommercialrealestate