This past commercial real estate market correction has taught us a new trick for investing in Hawaii commercial real estate. It is not any easy one to perfect either. Only the most sophisticated and the deepest of pockets seem to have the best opportunities. We are seeing several examples of investors who bought large properties (mostly hotels) where the market value of the property has dropped 30% or greater, and the loans now total more than the current value. In past cycles we saw clients give the keys back and be happy they had no personal guaranty’s. The investor would lose title to the property and write off their cash invested…. and usually go out and raise more money to invest in the next property. This time around we know of more than one investor who went back and bought the underlying loans back at a discount, waited for the market to raise just a little bit , and bingo they now have equity back in the deal. They in effect lost their equity, stayed in the deal, collected asset management fees along the way and later squeezed the least secured position down to dramatically reduce the overall level of debt on the property. This is another way to create value out of a property in this cycle.
