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Wednesday, 29 August 2012

Sabal Financial Fast Becomes Big Buyer of Distressed Loans

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Commercial Real Estate Direct Staff Report

Sabal Financial Group, a three-year-old investment manager that targets distressed real estate, has in recent months acquired some $300 million of nonperforming loans from banks and CMBS special servicers, making it among the more active players in the business.

And it's aiming to remain very active in buying additional distressed assets.

The Newport Beach, Calif., company was founded by and is led by R. Patterson "Pat" Jackson, the former founder and chief executive of IndyMac Commercial Lending Corp. It started pursuing acquisitions in the distressed sector two years ago when Sabal, then known as Milestone Asset Resolution, was involved in the acquisition of stakes in pools of assets from failed banks that were sold by the FDIC.

It bought those stakes in partnerships with Oaktree Capital Management, which subsequently acquired a non-controlling stake in the company. That's when it changed its name to Sabal.

The Sabal palm is the state tree of South Carolina, Jackson's home state. It is known for being extremely flexible and durable. During the Civil War, for instance, it was used in the construction of military forts because of its strength and durability - a suitable symbol for a real estate investment company.

The company in recent months has purchased a $69 million portfolio of assets from BB&T Corp.; a $96 million portfolio from Bank of the West; a $121.5 million portfolio from Regions Bank; and a handful of assets from a $345 million portfolio that CWCapital Asset Management had offered. In each case, its acquisitions involved a mix of real estate loans, some of which might technically have been classified as performing, but were under some sort of distress. Collateral has included a myriad of asset types, including commercial and residential properties, business assets as well as land.

Land makes up some 60 percent of its holdings, which stands to benefit substantially in the event housing prices climb.

While the company's thirst for additional investments isn't anywhere near being satiated - "We'd love to buy billions," said Kevin R. McKenzie, head of investments - it's quite selective.

McKenzie explained that the company has a two-step process before it even considers fully underwriting and bidding on a portfolio of assets. Using an in-house database of its historical underwriting to figure out roughly how much it would pay for assets that are being offered, it first determines whether it would be competitive or not. And if it determines it would be, it then does a thorough due-diligence review before submitting a final offer.

"Our accuracy in estimating what we will ultimately bid is very high," McKenzie added.

That process pulls it out of the running for certain offerings quickly, allowing it to focus its efforts on portfolios it can win. As a result, it's successful in about 20 percent of the deals it fully underwrites - an extremely high success rate.

And because access to the capital markets has opened up wide for investors in distressed assets, its capacity is nearly limitless. For instance, other investors have tapped the CMBS market for relatively cheap debt with which to leverage their acquisitions. And the buzz has long been that Oaktree, through Sabal, plans to do the same.

The company in three years has grown its management portfolio to some $4 billion. It has been pursuing the acquisition of loans from banks and CMBS special servicers. And while it has done direct deals, it prefers working through loan-sales advisers, which help establish pricing expectations for sellers.

This year through the end of June, some $8.4 billion of loans were offered or sold on the secondary market. That's down sharply from last year, which saw $15.2 billion of volume, including a number of very large outliers. The expectation has been that the full year should see some $30 billion of offerings or sales, but that target is fast becoming distant.

Comments? E-mail Orest Mandzy, or call him at (267) 247-0112, Ext. 211.



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  • Subject: Loan Offerings (LOAN), Mortgages/Financing (MOR)
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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

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CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

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