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10 Lessons from a Distressed CMBS Portfolio Assignment

Here are 10 insights I can offer you after completing a consulting assignment on an 850,000 SF portion of a $1B distressed CMBS portfolio sale. 1. The news on the street is not necessarily what's happening with the borrower and his property. 2.  To fill vacant space, discount your rents significantly.  Be the best place for the best price. 3.  Plan to renew at lower rates. Once your in-place tenants see what you've done with rents to fill the building, they'll likely want the same deal. 4.  When the borrowers stop paying, it's because they realize they're chasing losses. Paying to keep the property is worth less than letting their equity go. 5.  Property values are less than the debt owed. Find motivated lenders willing to cut a deal. 6.  Some properties are worth more as land sites than empty buildings. 7. Do your due diligence.  Lenders don't like to foreclose on Phase II and Phase III assets.  Make sure you're not buying a liability. 8.  Plan to carry an asset for 1-2 years to reach stability. 9.  Once stabilized, it may be 36-48 months before you recover your investment. 10.  Don't bet the farm on your exit cap rate.  Cash flow will likely still be paramount when you dispose.