08/05/2009

Citigroup Taps 3 Brokerages for Foreclosures

Citigroup, one of the nation's biggest commercial real estate lenders, has selected three brokerages to oversee the sale of distressed properties.

Cushman & Wakefield, Grubb & Ellis and NAI Global last week executed contracts naming them as the bank's preferred vendors. The firms are expected to help Citi evaluate its distressed commercial real estate assets and market properties once they enter the foreclosure process.

Citi's institutional-sized offerings are likely to be divided mostly between New York-based Cushman, which has had a longstanding relationship with the bank, and Grubb, which is based in Santa Ana, Calif. NAI, of Princeton, N.J., will likely handle mostly sales of small commercial properties - its specialty.

The contracts are a bright spot for the three firms, which could stand to get a significant volume of sales assignments. At the end of the first quarter, Citi had $23.7 billion of commercial real estate loans, ranking 10th among U.S. banks, according to Foresight Analytics of Oakland. That consisted of $12.9 billion of commercial mortgages, $7.6 billion of multi-family mortgages, $2.7 billion of construction and land loans, and $431 million of unsecured loans.

Some $475 million of the portfolio was nonperforming - equal to 2% of the total. That's a relatively low nonperforming ratio among giant banks. Figures on foreclosed properties held by Citi were unavailable. The bank declined to comment.

Citi's decision to rely on a select group of brokerages, rather than put listings out for bid one-by-one, could become the standard for other banks. However, Wells Fargo, which assumed a large portfolio of commercial mortgages via its acquisition of Wachovia at the end of last year, is expected to tap affiliate Eastdil Secured to handle most, if not all, of its listings.

The major brokerage firms have spent the past year pitching their services to lenders and special servicers, hoping to win a steady stream of listings on foreclosed properties. To date, however, those offerings have been a trickle, not a flood.

In one plum assignment, the FDIC tapped CB Richard Ellis as a primary advisor for its sales of foreclosed properties. The agency, which could shop seized properties worth hundreds of millions in the next few years, is expected to select additional advisors.

Special servicers, which oversee a growing inventory of troubled commercial mortgages, could be the wild card. Executives at some major special-servicing firms said they will most likely ask brokerages to bid assignment-by-assignment, which they feel will assure bondholders that the best effort was made to maximize recoveries from liquidations.

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