Buyers find silver lining in commercial market

February 26th, 2010

The economic downturn has all but crippled the commercial real estate market, leaving private equity groups and other strategic buyers to begin exploring the advantages of purchasing commercial properties out of bankruptcy.

The opportunities are plentiful, though the market is still establishing its pricing scale, and few buyers want to tip their hands about how much they would pay. But the bankruptcy filing rate for South Florida businesses increased 28 percent in 2009, according to statistics reported by the U.S. Bankruptcy Court for the Southern District of Florida.

No company wants to file for bankruptcy, but there is a silver lining for strategic buyers, according to Kevin Lamb, a corporate attorney and shareholder at the Gunster law firm in West Palm Beach. Strategic buyers with funds at the ready in mergers and acquisitions, he said, can cherry-pick the company’s real estate assets while leaving the liabilities behind.

“In a down economy, a substantial portion of [mergers and acquisitions] activity takes place in a bankruptcy setting. Buyers familiar with the process can reap substantial value,” Lamb said. “A bankruptcy sale can also benefit the bankrupt company’s employees, who often find a home with the buyer.”

Lamb said he helped close three deals for strategic buyers at the end of last year, but declined to disclose any details. Private equity firms are getting more aggressive about making bids for real estate in bankruptcy, he said. At the same time, lenders are looking to sell properties on which they foreclosed and strategic investors are preparing to build their portfolios.

“Strategic buyers and hedge funds with large cash reserves are finding opportunities in commercial bankruptcy cases,” said Jack Williams, southeast regional director of business restructuring at BDO Consulting in Atlanta. “The trick is wading through the bankruptcy sale without tripping any mines. The lack of publication in local papers works to the advantage of those playing in the market.”

For all the deals that haven’t been publicized, there are some high-profile South Florida companies selling real estate out of bankruptcy that are well-documented.

Read the rest of my story on The Real Deal.

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