Commercial Real Estate Recourse Financing

Implications: There were names like Fox & Carskadon, McNeil and Consolidated Capital among the biggest income property acquisition syndicators in the 70’s and 80’s, but no more.  And no more are thousands of other syndicators of that era big and small, who generally fell by the wayside as they could not execute.  And the reason they could not execute was they could not exit their existing portfolios to substantiate further activity.  And the reason they could not exit was that the tax write-offs that were the foundations of their business were not available to future buyers after tax code changes.  So activity slowed, and the recourse provisions of their debt put them down.

Analysis: From the ashes, the speculative activity of this century rose on the back of low cost, non-recourse, hi-ratio debt combined with unrealistic rent projections.  And now it’s going to sink once again on the embers of refinancing with recourse and flat or declining rents and accelerating expenses.  This will create bargains for those able to execute in the face of realistic prices and rents combined with restrictive and expensive and lo-ratio term debt.   A name mentioned in the reference material is Judah Hertz.  Mr. Hertz has profited from similar periods in the past.  He likes to buy prominent buildings at distress prices which have been rehabbed recently by the often defaulting party and assume the leasing risk.  I think his plan might be a good model to follow in the coming decade.    Good luck and good hunting!