Going, Going, Gone: Discussing Note Sales and CRE Transaction Trends With Justin Latorre From LightBox
As the pendulum swings to economic recovery, real estate investors in search of property acquisitions are turning to investment sales professionals to acquire properties as well as auction companies, with a willingness to bid on both attractive properties and mortgage loans. MBA NewsLink interviewed Justin Latorre, Managing Director of Auction Services at LightBox, about trends he sees at a leading auction platform for commercial real estate assets.
Latorre has been involved in more than $1 billion of value-add investment real estate transactions in the retail, multifamily, industrial and residential sectors as an investor, broker and online auction facilitator since 2004.
In addition to his role with LightBox, Latorre is Co-Founder and Chief Investment Officer of Torro Capital Group LLC. He is currently a partner in a 200,000-square-foot portfolio of retail centers that have seen value appreciation exceeding $20 million. He also sits on the board of Tapestry Group, a foundation that owns and operates affordable housing apartment properties.
MBA NEWSLINK: Describe your typical auction listing and the ratio of note sales to property sales over the past 12 months as compared to your outlook for the next 12 months.
JUSTIN LATORRE: The auction deals we are seeing today are typically single assets, sub-$10 million in value, located in non-core markets, from non-institutional sellers. The majority are what you might expect, hospitality and retail, as hardest hit by the pandemic.
Since the RCM LightBox platform is used for both traditional managed bid sales as well as online auction, we have a pretty good ‘whole market’ perspective and are seeing a noticeable uptick in note sales but not yet at auction.
Historically, loan sales are the first to be repositioned. We continue to believe that we will see that be the case in this cycle as in previous ones. Currently, we do not have much insight into troubled or modified loans. Banks and borrowers have a grace period through the end of this year, unless it is extended further, that they do not have to report any short-term loan modifications made due to COVID-19 challenges. This has many implications to lenders, but for investors it means we do not yet have much visibility into how many loans may have been modified and to what end in terms of their ultimate performance. More than likely as this policy provision, which re-interpreted FASB with regard to bank reporting through the CARES act, will empower banks to sell off “bad” loans as this period expires and unload any risks associated with those loans.
NEWSLINK: How would you describe the auction market landscape? Do you expect a big shift in 2021?
LATORRE: The market in general is really heating up and we are seeing increased activity on active deals. All our asset marketing channels continue to see a large uptick in buyer interest and the shift seems to be in buyer commitment. We are seeing and hearing that more buyers are actively pursuing and closing deals now that vaccines are more widely distributed, and more states and cities are “opening up” and lifting restrictions. Auction assets tend to be deals that were having issues going into the pandemic that need a capital infusion to stabilize.
NEWSLINK: Describe your typical auction listing and what has surprised you so far in 2021?
LATORRE: We are seeing opportunities from all asset types, pricing strata and locations. Most deals are under $30 million for their target price and tend to be in secondary and tertiary markets. We are seeing an uptick in terms of larger deal size, note portfolios, bankruptcies and foreclosures. We have been most surprised by the volume of and focus on the economic and policy relief that has been enacted and/or planned. In a year that we expected to see steady, low interest rates and muted optimism we are now actually experiencing increased inflation pressures on interest rates and considerable optimism.
NEWSLINK: Hospitality and retail are in the headlines constantly. What property types make up your recent deal flow?
LATORRE: Hospitality and retail remain the primary asset types that we are evaluating for auction, but platform-wide we are working with brokers to market and promote thousands of deals nationally in each product type.
NEWSLINK: Many investors expected quickly appearing distressed transactions post-COVID. Have these materialized?
LATORRE: No, we are not seeing the level of distress that investors were expecting. In this cycle, investors have more equity in play and banks have been afforded significant accommodation to work with their borrowers via the CARES act and the re-interpretation of FASB with respect to TDRs along with recent moves by the SBA to relieve pressure on borrowers until Q1 2022.
We expect the distressed cycle to be more moderate; but we have an eye on higher interest rates and what that could mean if inflation continues. From a macro perspective, wages continue to have upward pressure and the broader commodity and construction environment remain considerably elevated.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to NewsLink Editor Mike Sorohan at email@example.com or NewsLink Editorial Manager Michael Tucker at firstname.lastname@example.org.)