How much to bid on commercial NPNs (past maturity)

[Jean G.]

Hello, I have been seeing increasing opportunities recently to bid on non performing notes on commercial properties that banks are trying to offload.

These notes usually have the following characteristics:

The note has reached maturity several months ago. Sometimes a year or two ago. Presumably the borrower is unable to refinance at current rates.

The borrower may or may not be making payments on the note, even though it is past maturity (is it a problem to foreclose if they are making payments?)

The notes are all on commercial properties (office, warehouse, shopping center, mixed use or sometimes multifamily)

The properties are either vacant or occupied by tenants, not owner occupied

The property value is usually higher than both the UPB and the legal balance, sometimes significantly higher than the

Now it is important to mention that I have very little experience with issuing notes and buying performing notes. No experience with non performing notes.

My idea is to buy these notes with the primary goal of accessing the property through foreclosure, knowing that there are several other possible outcomes. This is what I think I know:

- The borrower can choose to pay off the note at any time (by selling the property or just paying off the loan with other funds), so it is important that the legal balance covers my investment and some profit

- The borrower could file bankruptcy (can someone confirm that this will only cause delay, but not jeopardize ultimately collecting the legal balance of the note)

- Most of these DOTs will have a rent assignment clause, so I could try to enforce that and collect rents from tenants (essentially manage the property) while I am holding the note and trying to foreclose. Does anyone have any input on why this may not work, as it seems to not be a common thing for the banks to enforce.

- I could be successful with foreclosure and end up owning the property

- Since the note has reached maturity, it cannot be made to perform again by the borrower where I am stuck with it for years. There will be a resolution, one way or another, say within 6 to 24 months

Please feel free to comment on anything above that does not make sense.

Now my main question is: how are such notes valued? What is the seller typically expecting to sell these for, considering that the UPB and legal balance are lower than the property value?

In one instance I was told that the seller was expecting 92 to 94% of UPB, which was in that scenario equivalent to a 85% LTV, and I thought this was too high for the amount of risk and unknown involved.

I would love to be buying these around 50 to 60% LTV but don t know if that s realistic currently?

If the legal balance is already at 60% LTV for example, would a seller expect a higher amount than the legal balance possibly? Which would mean you loose money of the borrower immediately pays off, so not good at all. Just trying to understand what sellers expectations are.

Thank you for any pointers including things I may be missing.