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Shopping Centers Today -> May 2002
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INTERNET SPEEDS REAL ESTATE DEBT TRADING
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| J. Kingsley Greenland |
With companies increasingly using the Internet to speed the exchange of commercial real estate, it was only a matter of time before others started doing the same for commercial real estate debt trading.
The Debt Exchange, for instance — or DebtX, as it likes to be called — is using Web-based technology to expedite the sale of commercial loans, including mortgages and retail property debt, and is creating a more efficient and vibrant secondary market for these loans.
“It reduces the friction” and clutter of selling commercial real estate debt, said the company’s CEO, J. Kingsley Greenland.
Other companies that have ventured into online loan trading include HanoverTrade.com, Edison, N.J., which provides Web-enabled due diligence and bidding, and Commercial-Loan.Net, a Washington, D.C.-based firm that — in partnership with Cushman & Wakefield — allows online due diligence for commercial loan buyers and sellers.
DebtX developed software that replaces the paper-laden and stodgy war-room course of action with an electronic process, thereby cutting the costs associated with bidding on loans. Through this system, more investors can submit bids in the same period of time, producing a de facto increase in liquidity for the loan seller.
“If we’re right, this will open up the market for selling single loans,” said Greenland.
Prospective investors can do the entire necessary due diligence on a single loan or a portfolio over the Internet, then download documents from a password-protected area of the Web site. The data is organized so that they can quickly examine extensive loan documents and make fast decisions about what to buy and what to pass.
The less Web-savvy can buy the same information on a CD-ROM or in hard-copy form. If potential investors prefer, DebtX will set up a traditional war room, where they can pore over pages of loan documents before deciding to purchase.
Greenland’s team does not simply post information up on the Internet and wait for responses. The company analyzes portfolios or individual loans and tries to make favorable matches between buyers and sellers.
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| *Other loans include health care, industrial, warehouse and mixed-use.
Figures are rounded. Source: The Debt Exchange |
When the time comes to complete the deal, DebtX will organize a sealed-bid or English auction, and require a 10 percent deposit from the top bidder to close the sale. Or, if sellers prefer, the company can hold a private sale and contact select investors from its database of more than 13,000 investors.
Greenland estimates that DebtX has cut the transaction cycle from 180 days three years ago to 45 days. Eventually, he said, the company hopes to slash the cycle down to 10 days.
While its client list includes such industry standouts as Horsham, Pa.-based GMAC Commercial Mortgage; Lend Lease Real Estate Investments, Sydney, Australia; and the Federal Deposit Insurance Corp., Washington, D.C., local banks that purchase retail real estate mortgages are among DebtX’s best customers, Greenland said.
DebtX has been a loan adviser for more than two years now, since its launch in January 2000. Brokering loans is the company’s only business, and by midyear it hopes to consistently trade $100 million in commercial loans per month. In 2001 it completed $500 million in transactions, a significant improvement over the $150 million that it did in 2000. Retail property debt accounted for more than 12 percent of that, according to company figures. With a team of about 16 brokers, DebtX began trading residential mortgages earlier this year.
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| The Credit Suisse First Boston supply/demand index measures property
supply and demand expected to enter a geographic market. Projections
are for the next 18 months in the 54 largest metropolitan markets
for retail. As of 4Q 2001, the Richmond, Va., market was projected
to have the most demand for retail real estate, while Sacramento,
Calif., could be oversupplied. The index is updated quarterly. Source: Credit Suisse First Boston |
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