As real estate brokers, we dream of "retainer" type clients, who handle a constant stream of buildings seeking our services in selling them-clients like banks (or remember the lucky few who got to handle the Resolution Trust foreclosures?), REITs, large developers…. In this challenging economy, it is not enough to show such potential sellers how many listings you have in house. You need to convince them you're the real estate broker for the job because you have innovative tools to help them sell their buildings. In the case of foreclosures, banks holding them in portfolio are anxious to unload them and stop the clock on carrying costs, litigation costs, etc.

Recently, some innovative brokers on Long Island (the deal isn't closed yet so we can't reveal the names), found a way to turn around a large foreclosure situation and get it out of the bank's nonperforming loan inventory. Not only did the bank get to take a nonperforming loan off the books, it got to add a good new income producing loan. The property was recycled back into productive use. And the real estate broker will make a very healthy commission for putting it all together.

The site was a multi acre industrial property with over 200,000 square feet of buildings. The prior owner went bankrupt after a long protracted downsizing and "death." The locally based bank which had financed the company for almost 20 years was left holding the bag on the nonperforming mortgage and several lines and working capital loans. Because of ongoing litigation surrounding the company's demise, the bank couldn't just sell the property to a new owner. And, on top of all that, there had been some dumping at the property resulting in a small environmental cleanup need. All in all, it was turning into a banker's worst nightmare.

Fortunately, a bright real estate broker saw the potential of the site and the business and found a group of like minded investors. They convinced the existing company principals to bow out gracefully in exchange for releases. They convinced the existing bank of the validity of the new enterprise. And they accessed some valuable economic development tools to help put the deal together. The first tool brought to the table was a subordinate long term SBA 504 mortgage loan of $1 million to back up the bank's new financing and provide enough funding to include the environmental cleanup in the project cost. A Linked Deposit interest rate subsidy on part of the first mortgage made the deal that much sweeter to the buyers. Keyspan and LIPA were brought in to provide free energy audits, much needed upgrading of equipment with significant incentives to help make it happen. The local town's economic development team stepped in to help, recognizing it meant saving over 200 manufacturing jobs in the community. When all was said and done, the reformed company was up and running, the 200+ manufacturing jobs were saved in the community, the investors got favorable financing to accomplish the project, and from the bank's perspective- it eliminated a large nonperforming series of loans, got a new good loan on the books and had a new growing company customer to use bank products and services. (Plus-don't forget the broker who started it all - his commission is significant).

So, when looking to help your bank customer turn over a foreclosed commercial/industrial property, keep the SBA 504 long term fixed rate subordinate mortgage loan in mind along with other economic development incentive programs, as tools to help put new deals together.