Pony Rides and the Great Real Estate Recession

The forecast continues to look bleak for real estate development of any kind, but particularly the commercial real estate markets, which appear headed for a financial tsunami. The numbers are large enough to cast a shadow over every facet of a recovery, even when divided by two. Somewhere in this pile is a pony, i.e. opportunities for investment and employment, assuming you know where to look. (Check out our prior posts on the FDIC/RAC's, for one.) The point: real estate projects (distressed and otherwise), will still need to be analyzed, managed, leased, sold, finished, marketed, etc. provided you connect with the right buyers and sellers. Here's the state of the union and best guesses for what's coming. In coming weeks, we'll talk about how to ride the pony.

• $38 billion – the remnants from failed banks that the FDIC is trying sell, ranging from virtually worthless mortgage backed securities to office decorations such as plastic Christmas trees.
• $1.4 trillion – the total original value of commercial real estate loans due to reset between 2010 and 2014, nearly half of which are underwater, i.e. the borrower owes more than the underlying property is worth. (Congressional Oversight Panel Report
• 40% - the decline in commercial property values since 2007.
• $280 billion – the additional loan losses that will need to be absorbed based on extrapolating the last two points.
• 94% - the portion of failed banks (since 2008) that had real estate loans as their largest category of delinquent debt. Construction loans accounted for 23% of the total. (SNL Financial)
• 35% - portion of which real estate loans comprise the total loan portfolio of most banks.
• 95% - portion of real estate loans comprising the total loan portfolio of Imperial Capital Bank in La Jolla, CA.
• 33% - amount of total U.S. deposits held by Bank of America, JP Morgan Chase and Wells Fargo following consolidations and acquisitions, up from 21% in 2006. (SNL Financial)
• 280 – the number of bank failures since 9/25/2008.
• 829 – the number of U.S. banks currently on the FDIC problem watch list. (Standard & Poor).
• 2932 – potential number of bank failures over the next decade (Keefe, Bruyette & Woods.)

FDIC Opportunities, Part II- Navigating the RAC List

One of our recent posts focused on employment opportunities with the FDIC. However, most of those require prior experience with bank workouts and represent only a small portion of the total opportunities. For most real estate professionals, the gold mine of opportunities is with firms approved as primary subcontractors for the FDIC. These are the firms that actually manage the assets, determine values and strategies for liquidation, etc. For example, CB Richard Ellis is said to be targeting 600 new hires nationally for FDIC related projects. As more real estate portfolios end up in FDIC receivership, new positions will continue to surface with FDIC contractors requiring expertise in general operations, sales and marketing. Here's a strategy on pursuing those opportunities, sometimes before they've even been posted.

Step 1: The FDIC Receivership Assistance Contractors (RAC's)

The FDIC has published a list of firms approved to help with the management and liquidation of REO assets. The list is divided according to specialty or disciplines, some that appear to cross over each other. Your first task is to build a spreadsheet with the companies and contact names that could apply to your field of expertise. Don't be surprised if you end up pulling contacts from four or five of the listed groups; that alone should give you 30-40 potential employment contacts.

Step 2: Use Jigsaw.com to go beyond the immediate list

Here's an example of how to expand your reach with the RAC list: scroll down the RAC list to the second group that's focused on Owned Real Estate (ORE). The first subcontractor listed is CB Richard Ellis' Dallas office. A general email address is provided as well. You should certainly send your information there but I'd recommend going one step further by identifying one or two others in the same CBRE office whose titles indicate some involvement with asset management or liquidation. Using an online directory like Jigsaw will save loads of time and help you quickly identify who's who in a company. The monthly fee of $25 month is a bargain and allows up to 150 contacts to be pulled each month.

Don't stop there: use Jigsaw to determine if CBRE has an office in your local market... for example, Phoenix. Look for anyone in the Phoenix office with a title related to asset management, REO, distressed assets, FDIC, etc. If you find two or three potential contacts there, you now have 4-5 potential networking contacts vs. just one from the primary list. Repeat this for all the companies in your primary groups and soon you'll have 100-200 names on your spreadsheet. Note: make sure you capture the following for each contact: name, company, title, mailing address, email address and phone.

Step 3: Send each an email but don't attach a resume

Emails with attachments from unknown senders tend to get sidetracked by spam filters. You want to share the key details of your experience quickly and simply, without the need to open an attachment. Hence, we present the "Blackberry resume". It's clear, concise and can be easily read on a smartphone. Best of all, it's almost impossible to miss the keywords which really matter. Here's an example:

John... please keep me in mind if your future needs require a Phoenix based real estate finance professional. A brief summary of my experience:

• VP Finance- Gables Residential, a nationally recognized multifamily REIT
• VP Investments- Brookstone Capital, debt and equity partnerships for real estate projects
• Sr. Analyst- Deloitte & Touche, specialization in real estate and manufacturing

• BSBA- University of Arizona
• MBA- Arizona State University
• Licensed Real Estate Agent, Arizona

I'd be happy to forward a complete resume if you're interested. I'm available on a contract or full time basis. Thanks in advance for your consideration.

Bill Smith

bill.smith@anywhere.com

602-333-5555

Step 4: If you don't receive an email reply, send a resume by mail one week later

Your mail follow-up should include a cover letter that is virtually identical to the one above; the only change would be to the closing paragraph ("I've attached a complete resume..."). Resist the urge to ramble or write something longer; it will do more harm than good. The cover letter needs to clearly define who you are, what you do and where. Keep it short and sweet for maximum impact. The goal is to detail your experience in as few words as possible.

FDIC Employment & Acquisition Opportunities

Similar to the RTC days, the best avenue for real estate professionals to secure gainful employment in the near future might be with the FDIC. To date, the Fed has given banks a long leash to curtail an onslaught of failures; hence, the "extend and pretend", "pray and delay" monikers. As the economy shows signs of strength, the Fed will begin flexing it's regulatory muscles and require banks to address the deals they've been nursemaiding for so long.

Until those assets are re-traded, no one knows for sure what the total impact will be. However, when you consider there's an additional $2 trillion of commercial real estate debt due to reset between 2011-2013, half of which is valued less than what is owed, it doesn't look good. Clearly, the FDIC is faced with becoming the largest REO owner and employer in the nation. So, if you're in the job market or looking to acquire real estate assets at great prices, get ready.

The Hiring Side- "We've Only Just Begun"

The FDIC is hiring. And, like the old Carpenters' hit, it's just the beginning. In addition to the FDIC, there are the 100+ third party contractors (known as RAC's) who have contracts to support the FDIC's asset management and disposition activities. Many of them will need specialized talent, too. Some of the candidates will come from banking, some from real estate, some from other industries altogether. To see a complete list of third party firms by industry segment, check out the FDIC Receivership Assistance Contractor list.

Applying to the FDIC for an opening is no slam dunk. A separate online application must be completed for each position. Don’t make the mistake of applying for one position thinking the FDIC will consider it for other openings, regardless how similar they might appear. You must submit a separate application for each position of interest. It’s time consuming, but necessary. Some tips on completing the applications:

• The FDIC uses a scoring system to determine fit with a position. It is important that the language in your resume and the your answers on the application match as closely as possible to the job description. For example, if the job description requires “entitlement” experience but you use the term "approvals" in your resume, it may not receive as high a score. Certainly, don't embellish; just make sure you’re speaking the same language. This might mean rewriting your resume to better match the each opportunity.
• A background check will be required on each application as well, but you can copy and paste much of the information to speed the process up. Park the answers (in order) on a separate document as you complete the first application, the go back to it on additional applications.
• If you have any prior experience with the RTC, banks or federally approved workout firms (RAC's), be sure to note that; it is considered a huge plus. Again, don’t assume the folks at the FDIC will recognize a company’s name and draw the right conclusion; instead, spell out the relationship, duties or role. Learn more about the application process.

The interview process itself is rather impersonal. Once your application has been approved for consideration, a brief phone interview is conducted with someone at the FDIC. Assuming the visit goes well, a conditional offer is made subject to final approval and completion of your background check. Don’t be surprised if you are formally hired before you ever meet the person who will be your supervisor.

Good news on compensation: the FDIC is paying market rates. Depending on the position applied for, qualifications and compensation history, the base salaries can range from $100-175k, plus bonus incentives and/or overtime. Each position has a defined compensation range (e.g. $105-125K). The initial offer will always be made at the lowest number; however, if payroll history is supplied demonstrating you are accustomed to making more than the low end, the local office has the option of increasing the offer by up to 25%

FDIC Careers posts positions currently available directly with FDIC offices nationally. Click on View All Vacancies to see the full gamut of needs. To search opportunities with both the FDIC and it's approved contractors, go to Indeed.com. Enter FDIC in What field and City or State in the Where fields.

The Buy Side: Acquiring Assets

The FDIC has a history of selling their assets at 94% of appraised value regardless of what the previous value of the asset was. Obviously, the key driver in the deal will be the appraisal. Given recent challenges in quantifying property values, this could be deal breaker for either side.

FDIClistings.com is a good site to start looking for potential deals. Prescient and the other asset managers have more than 1000 brokers that will list assets on behalf of the FDIC so look through local channels as well.

The Roseview Group works on various bank assets prior to the FDIC getting their hands on a bank. When they dispose of assets, they are interested in the following from a buyer: surety of execution, a desire not to be re-traded, an interest in not being nickel and dimed, a buyer that has a target asset in mind, and someone that will purchase without reps and warranties.

Asking for a list of all assets "for sale" is usually ignored. The RAC's get thousands of tire kickers and they ignore most of them. The surest way to get their attention is to have one troubled asset acquisition under your belt, and a specific new acquisition target or pool in mind.

NOTE: We'll continue to update this post with additional information so be sure and check back.