Partner Wayne Heicklen Speaks to Globe Street About Investors and Distressed Banks
Partner Wayne Heicklen, Co-Chair of Pryor Cashman’s Real Estate Group, was interviewed by Globe Street for its November 2010 article, Cherry-Picking Banks for Opportunity – Investors, tired of waiting for the distress floodgates to open, try to cherry-pick assets from struggling banks. Nice try, but no cigar.
When asked about the latest trends in distressed real estate investment, Heicklen told Globe Street about the back-and-forth negotiations between a troubled bank and an eager private equity investor over a few distressed assets. The firm had its eye on certain assets in a portfolio of non-performing loans held by a financial institution on Long Island. It quickly found, though, that the bank’s price expectations were too stringent, so it gave up.
Then the bank merged with another, so Heicklen’s client tried again and found the new ownerships more amendable to a sale. But the private equity company’s original idea of acquiring just the group’s best assets? Nice try, but no cigar. And no sale. “The private-equity company started out bidding on the particular assets it wanted but was quickly pushed into the direction of buying the whole portfolio,” Heicklen says.
The article notes that while the trend is to buy just a few assets from the distressed bank, putting this practice into affect is not easy, starting with the fact that banks and the government are well aware of what the investor is trying to do as it cherry-picks the best loans, Heicklen says. “Many of these loans are losers, with only a couple of diamonds in the rough. Believe me, both banks and private equity have a feel for that.” The environment is still skewed to the holder of the distressed loans, he says.
Heicklen told Globe Street that there are some good deals available on banks’ books. “Properties that used to trade at $400 per square foot now can be had at $200 per square foot via a bank note.” Also, banks are becoming more concerned about mark-to-market rules, which show every indication of becoming tighter. So far it has been easier on their books to sit back and wait, Heicklen says, but they know they can’t do that forever.
A more fluid, transparent market for distressed assets would be a welcome alternative to banks when they are finally forced to push troubled assets off their balance sheet. “The banks have to realize that they need to move forward, he says. “I do see that happening more than it had been but it is still a major problem in recognizing losses.”
To read the entire Globe Street article, please click here.
