DISTRESSED PROPERTY RESOLUTION

The Finch Group and its principals, over four decades and four significant real estate recessions, have established an impressive distressed property resolution record implementing well thought-out specific business plans.  The Finch Group draws its knowledge from previous structured workouts and the repositioning of hundreds of properties for financial institutions, investors and ourselves during prior recessions.  We have learned that the most important component is (i) a complete and honest understanding of priorities and (ii) to determine if there is a commitment and capability to a long-term hold, or simply a need for timely disposition.  The best result can only be achieved through implementation of a well thought-out business plan on a property-specific basis that realistically reflects the strengths, weaknesses and priorities of each individual situation. 

A focused single-purpose determination has allowed The Finch Group to either acquire from or successfully dispose of assets for financial institutions. 

The Finch Group, Inc. (“TFG”) founded in Boston, Massachusetts in 1981 and relocated to Boca Raton, Florida in 1997, control a group of associated single-purpose entities, each of which handles an aspect of the development, ownership and/or management of:  (1) government assisted, affordable and/or market rate multifamily residential rental properties; (2) hospitality properties; or (3) commercial properties.  Local knowledge is the key component to a thoughtful targeted business plan. 

From its inception, TFG has established an impressive track record by applying its extensive experience in evaluating, developing, rehabilitating, marketing, and managing affordable multi-family residential, mixed-use and high-end properties combining an entrepreneurial attitude with its technical operational skills.

Throughout TFG’s history, and that of its Principals, most significantly as a result of the New England Real Estate crisis of the 1990’s; and drawing on lessons learned from earlier work on distressed properties, TFG became one of the Northeast's pre-eminent problem project resolution organizations.

TFG understands how the real estate market adapts to a crisis.  In 1990 it was directly affected by the New England real estate and resultant banking crisis.  After amicably working through its own restructuring, those same banks, and others plus the FDIC, turned to TFG for assistance.  The crisis provided The Finch Group the opportunity to acquire, restructure, reposition or sell 75 to 80 distressed properties for financial institutions.  It was a learning experience. 

While TFG brought to the table an in-depth knowledge of the marketplace, it took from the table a thorough understanding of how federal regulators and banks behave in a crisis. 

 It is the lessons learned in the past, that have led TFG to where it is today.

 By way of example,

• 1973 – 1975 … Wesley E. Finch, as operating director of his former employer, was retained by Massachusetts Housing Finance Agency to takeover, workout and reposition 929 House, 929 Massachusetts Avenue, Cambridge, Massachusetts and 808 Memorial Drive, Cambridge, Massachusetts.  These two projects, totaling 500^± units, were repositioned and today, over thirty years later, provide quality, affordable and market rate housing in the area between Massachusetts Institute of Technology and Harvard University.
   

• 1983 – 1985 … TFG tackled a financially distressed 423-unit, HUD-financed, high-rise, rental property in the Boston, Massachusetts suburb of Chestnut Hill.  TFG stabilized the property and converted it to condominiums (the first HUD-financed building to be converted to luxury condominiums in the United States).  Today, twenty-five years later, the property, called The Towers of Chestnut Hill, remains the pre-eminent luxury condominium in the Chestnut Hill area.

• 1993 – 1995 … TFG was brought in by a group of mortgagees, who had foreclosed on their debt, to develop, construct, market and manage the revitalization of the Somerset Hotel located on Commonwealth Avenue in Boston’s historic Back Bay. Built at the turn of the century, the old Somerset Hotel had seen better days.  Two developers had walked away from the deal and a third was foreclosed out.  With TFG’s broad market knowledge and its sense of the product that would sell at this location, it was able to revive the grand old property as housing.  This helped stabilize a key Commonwealth Avenue block, between Massachusetts Avenue and Kenmore Square, that was in danger of becoming a college campus extension, and it triggered significant new investment in the area.  Within 18 months, the property was renovated, the first phase of the project sold out, TFG redesigned the second phase to suit appropriate target market groups, oversaw construction, and successfully sold out the complex.  Today units in the building are selling at prices approaching $1,000,000.
   

•  2003 - 2005 …In November, 2003, TFG, working with its long-term joint venturer, Daejan, PLC (a London Stock Exchange listed property company) took over the operation of 513 severely distressed rental units contained within a 774 unit condominium association in Lauderhill (just west of Fort Lauderdale), Florida.  TFG also manages the condominium association.  Units within the property were generally selling in the low $70,000’s in November, 2003.  By November, 2005 similar units were selling in the mid $160,000’s, with “after bubble” sales prices now starting at $120,000⁺.

Today, TFG is particularly focused on acquiring units in broken condominiums; but, in doing so, clearly understands that its due diligence needs to be absolute and a decision point matrix religiously adhered to.  Questions to be asked:  Will TFG, as a (or will any) potential purchaser be buying individual units, stepping into the shoes of the sponsor, gaining control or just becoming a mortgagee in possession?  Are the other unit owners current on their mortgages, real estate taxes and maintenance fees?  If another unit owner is foreclosed upon, will that decrease the market value or appraised value of all units?  How will a lower appraised value impact retail customers when the new owner wants to sell?  Can the Condominium Association foreclose for unpaid maintenance fees?  If the Association can, they will take ownership subject to the first mortgage.  This will require careful timing of any special assessments. 

Many times condominiums within an association will be owned by a dozen or more speculators-all in financial trouble.  Once involved in an Association – like it or not - they are now your partners.  TFG believes units within broken condos will pencil out at 25 percent of the original price.  Also be prepared to deal with the owner-occupants who just saw the value of their home disappear.

Additionally for the vulture fund circling around these properties, they better not forget there are operating issues to consider including new Florida condominium statutes to protect the owner/occupants; it doesn’t protect the speculators. With an average of 30 to 40 percent of the units owned by owner/occupants, it could become a real problem. 

Experience counts, but most likely many experienced operators will (as             Wayne Wagner coined) “walk backward into the future, with [their] minds        anchored by the imprinted lessons of the past.”  Experience does matter,         but a thorough analysis of new facts and circumstances better play a role.

A significant part of The Finch Group’s success can be traced to its principals who have expertise in repositioning underperforming properties, and a majority of whom have worked together, and relied upon each other, for years.