MRC: Banks’ Increasing Willingness to Do Write-Downs Fuels Biz
Since February Madison Realty Capital has completed over $25 million of financing and note purchases, fueled in part by many banks’ increasing ability to take write-downs on existing debt. The transactions are spread over five note purchases and financing for properties located in Brooklyn, Queens and Manhattan according to the firm.
“Those $25 million of deals are a combination of new loans that we’ve made, bridge loans, and also we’ve bought a number of debt positions,” MRC co-founder and managing member Joshua Zegen told The Mortgage Observer.
In Long Island City, Mr. Zegen said that the firm had provided a $3.75 million bridge loan to finance the acquisition of the note on a 45,000-square-foot industrial property that has been rezoned for residential. The property has an additional 45,000 square feet of air rights on top. He pointed out that such third party purchases of distressed debt are often difficult to see financed by a bank.
“Typically when someone buys distressed debt it’s very hard to get bank financing for that transaction,” Mr. Zegen said. This is partly due to the speed required on these deals, he said. Lennar, the special servicer, was looking to sell and so this deal moved rapidly, closing in 10 days.
As a lot of smaller and mid-sized savings banks experience improved earnings, Mr. Zegen said that they are increasingly willing to provide discounts and write-downs. He offered as an example the case of an 11,700-square-foot CVS in the Rosedale section of Queens. MRC provided a $7 million bridge loan, enabling a borrower to repurchase his debt—but only after a bank agreed to take a write-down.
“Today given, one, an increase and improvement in markets and, two, the fact that they’ve earned their way out of some of these problems, they have the flexibility to write down,” Mr. Zegen said. “We’re seeing a lot of transactions happen because of that throughout the country.”
The other deals that put MRC’s volume over the $25 million mark include the note on an 80,000-square-foot office building, with retail component, in the Boerum Hill section of Brooklyn, not far from the new Barclays stadium.