Days of easy pickings in depressed real estate over, officials say

Vacancy rates have started trailed off, rents and values have risen, the number of bank failures has plunged, hordes of fresh capital have moved into the market and interest rates have remained at record lows.

Add it up and the good days are over for real estate investors who crave other people’s beat-up properties and defaulted loans.

“We think a lot of the low-hanging fruit and easy pickings behind distressed debt and foreclosing and taking possession” are gone, Larry Grantham, a managing director of Los Angeles-based Karlin Real Estate, said Friday at the Turnaround Management Association’s Distressed Investing Conference at Bellagio. “This year is going to be more challenging to find those deals.”

The other four panelists largely agreed, adding that their sometimes nerve-racking style of buying really low before trying to sell high attracted many acolytes during the recent recession.

“There’s too much money chasing too few opportunities,” Los Angeles bankruptcy attorney Jonathan Shenson said. “I don’t know where you look for opportunities at this point.”

Even targeting relatively small banks “in the middle of nowhere” does not produce results, now that online databases have proliferated, said David Tobin of Mission Capital Advisors.

“You find that every single private equity firm in the country and every single broker has visited them,” he said.

One emerging source of deals comes from banks and lenders who have built inventories of deadbeat properties.

“The good news is that some banks and holders of securities are making money elsewhere and some of them can take losses for the first time,” Fortress Investment Group managing director Jon Klein said.

Thus, they have shown more willingness not only to sell what they have but take market prices rather than hold out for higher appraised values, he added.

Also, Tobin said, the real estate rebound has been only partial. Six major markets— New York, Los Angeles, Boston, Chicago, San Francisco and Washington, D.C. — have come back strongly and, in some instances, bested prerecession benchmarks, Tobin said.

In smaller markets, Las Vegas among them, he said, “The recovery has been dramatically weaker than the rest of the country.”

Nevertheless, distress investors now scour such areas for prospects. Grantham recalled helping to refinance an unidentified local condominium tower even though that has been considered financially poisonous since 2008.

“Eighteen months ago, all the guys in New York saw that deal and didn’t want touch it. It was too risky,” he said. “Today, the guys in New York would finance that deal. That’s the change in the market.”

Contact reporter Tim O’Reiley at or 702-387-5290.