Real Property Alpha - Latest Comments in Supply and Absorption Timelines

Re: Supply and Absorption Timelines

Reeder — Thu, 22 Oct 2009 17:02:30 -0000

Interesting idea. Generally this is a tough structure to make work because it requires that the bank retain some interest in a deal that they just want to be out of. Also, from an institutional politics standpoint, it is very difficult to get bank REO managers to buy into this structure and then sell it up the chain of command to someone that can actually make a decision.

But I agree that it is a way for the bank to put their money where their mouth is if they disagree with Buyer about market recovery timing.

Re: Supply and Absorption Timelines

TB1000 — Thu, 22 Oct 2009 10:46:36 -0000

Is it possible to structure the deal in a way that gives both parties downside absorption protection? Take a slice out of the deal that will give the buyer a credit should the absorption take longer than reasonably expected or give the seller a credit should the absorption happen faster than expected?

The risk would be putting the money into a sinking-type fund or hold it in escrow, along with getting both parties to agree on the terms, but if both sides share in the aborption risk (like a participation lease) it may be possible to get a few more deals done.