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Wednesday, September 5, 2018

Do banks need advice on selling foreclosure properties?

By Janko Pahlitzsch (Berlin)

The world´s economy is booming and modern living and commercial spaces are in short supply.

But do investors really need advice regarding foreclosure/forced sales in Germany and other countries nowadays?

The problem we face today is that demand for space is much higher than what the market can provide. Most development projects underway are presold or preleased before they are even built.

Low interest rates – in other words, cheap funds to borrow – are widely available, and real estate investors are on the hunt for assets all over the world, inflating market prices.

During the global economic crisis in 2008, more than 55.000 court-ordered foreclosure auctions/forced sales of real estate properties occurred in Germany alone. This figure has decreased significantly, to an estimated 20.000 this year.

However, my answer to the question of whether investors need advisory services regarding forced sales and insolvency is yes!

Yes, there is high demand for advising banks and insolvency administrators throughout Germany, and elsewhere, on properties that do not seem to be the preferred choices of national and international investors.

Vacancy, capex, short-term leases, taxes and legal issues are just a few factors that explain why investor interest cools down quickly. But that’s the type of real estate where we don’t give up – and can verify an added value. There are tailor-made solutions for each problem.

These properties still can be sold by virtue of the best market conditions available now.

I would like to point to the example of a property in Mainz-Hechtsheim, Germany, which Avison Young is listing exclusively on behalf of a bank. It is a commercial property that will be sold by the trial court of Mainz on September 27, 2018. The light-industrial, flex-office building will be vacant February 1, 2019 – a factor that is supposedly the reason for a low number of prospective buyers thus far. However, through our multi-channel strategy, we already found several parties interested in renting space in this building close to Germany´s biggest airport, Frankfurt am Main.

We are trying to stabilize rental revenues by deploying a multi-tenant leasing strategy as opposed to a single-tenant leasing strategy.  In other words, we are not just trying to provide a space for a prospective buyer. We are also seeking several prospective lessees to protect the value of the investment while saving the investor time, effort and money. This strategy has worked for the property, located on Carl-Zeiss Strasse in Mainz-Hechtsheim, quite well so far. We have already found prospective lessees who are interested in signing long-term tenancy agreements, and negotiations are proceeding with potential new owners before the September 27 auction date.

This success story is just one example of how strategic advice regarding foreclosure/forced sales can pay off for banks, insolvency administrators and investors in Germany – and throughout the world.

(Janko Pahlitzsch is an Associate Director in Avison Young’s Berlin office with 13 years of commercial real estate investment sales experience. He specializes in advising banks and insolvency administrators on foreclosure/forced property sales throughout Germany.)

The postings on this site are those of the bloggers and do not necessarily represent the views or opinions of Avison Young.