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Hybrid Valuation Tools Are Making Remote Appraisals Easier for the BTR Market

Cost Effective Alternatives for the BTR Investor by Kade Clark Historically low interest rates and thin inventory of available homes to buy have pushed up home prices, creating a hurdle for Americans who want more space for working from home, remote learning, and maybe a treadmill to stay in shape. This combination of factors has attracted investors to the single-family rental market and forced some to create their own opportunities in the burgeoning build to rent (BTR) segment of the market. In the third quarter of 2020, construction started on roughly 14,000 rental houses, according to the National Association of Home Builders. That’s up 27% from the 11,000 homes built in the third quarter of the previous year. Accelerating BTR activity has put pressure on obtaining valuations at a time when social distancing requirements make in-person property inspections especially problematic. Fortunately, there are new and compliant alternative valuation tools that are making remote appraisals more efficient and reliable for the BTR market. Using Artificial Intelligence to Evaluate Value The Radian Real Estate Services Inc. suite of digital valuation services available from its Red Bell Real Estate, LLC subsidiary uses artificial intelligence to draw insights from nearly two billion real estate images to more accurately and quickly evaluate the value of residential real estate across the country. BTR investors typically shy away from ordering traditional appraisals due to the expense and turn time. The introduction of hybrid appraisals in the BTR space now fills that gap and provides other valuation alternatives that are cost effective. Through Red Bell, Radian offers interior and exterior Amplified Appraisal Reports (AAR) and Appraiser Reconciled Broker Price Opinions (ARBPO). The difference between the two is that the AAR includes a property inspection completed by a local real estate agent while the ARBPO begins with a Broker Price Opinion (BPO) completed by a local agent. An appraiser then reviews the information and determines the market value using Radian Interactive Value (RIV) which is integrated with the products.  Radian’s subsidiary Red Bell is a member of more than 400 MLSs nationwide, most of which update their feeds every 15 minutes for close to real-time information. The RIV runs the subject property through a similarity index and provides the appraiser with 20 of the closest comparables in terms of property characteristics, distance, etc. for three categories of property—sold, listed and under contract—for a total of 60 comparable properties, if available. The appraiser has the ability to review all photos associated with the comps as well as their listing history and choose those that best align with the subject property. The appraiser can also expand or reduce the market area and enter specific filters in order to narrow the comparable selection. These hybrid appraisals are both Uniform Standards of Professional Appraisal Practice (USPAP) and The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) compliant and are completed by appraisers who are licensed and/or certified in the state of the subject property’s location. The turn time for hybrid appraisals is similar to that of a regular BPO—about five business days—and priced in line or just slightly above that of a BPO depending on the product. Unique Challenges with BTR Valuations In the BTR space, appraisers are well equipped to handle the valuation for properties that have yet to be built because their rigorous training allows them to identify comparable market alternatives that are similar in quality of construction, design, location and overallcharacteristics. They have the knowledge and ability to review builder floor plans, build-out amenities, and locational influences in order to select the most appropriate comparable sales. In some instances, the client is the sole development in a community and doesn’t market the properties for sale but instead creates a rental market within the community. As a result, identical development market transactions are not available. When that is the case, an appraiser completing the ARBPO and/or AAR can look to adjacent developments in the area for market data. They can locate and utilize sales with similar locational appeal, similar access to retail, commercial development, and recreational activities. Additionally, they can select sales that are comparable to the subject property in characteristic similarities. In most cases, they are able to bracket main features/amenities in a pair-sales analysis approach with positive/negative, and weigh consideration for differences that impact value. With large-scale BTR communities popping up across the country, the challenge for investors and appraisers is in accessing the enormous range of information necessary to make an accurate property valuation. This challenge is compounded by the public health crisis that makes in-person analysis difficult or impossible.  Fortunately, the new digital valuation tools available now can streamline this process and make alternative appraisals accurate and cost effective even when done remotely. 

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Envelope Stuffer to CEO

PIP Group’s Charles Sells’ Real Estate Journey by Carole VanSickle Ellis When Charles Sells, founder and CEO of Platinum Investment Properties (PIP) Group looks back on how he got started in real estate, he proudly admits he started at the very bottom of the ladder. “In my early 20s, I took a part-time job at a company investing in tax liens stuffing envelopes for $10 an hour,” he recalled. Today, nearly two decades later, tax liens and other creative investment strategies are the key to PIP Group’s consistent delivery of high-performance assets and reliable returns to hundreds of loyal real estate investor-clients. “At the start, I literally fell into the job with the tax-lien company as a side-gig to earn extra money when I wasn’t bartending,” Sells said. “I had always been interested in real estate. When I finally got the chance to be involved with it, I fell in love with it—permanently.” He quickly rose through the company, becoming a real estate manager before striking out on his own with just four clients and about $4,000 to his name. “I used every penny for legal agreements and other paperwork to form PIP Group,” he said. “Today, we have managed more than $180 million in tax liens, fund oversight roles, private loans, and fix-and-flips.” While he was falling in love with real estate, Sells also fell in love with his future wife, Lena. At the time, she was working for a competitor. Sells hired her away, “and then I fell in love,” he admitted. “She is the smartest person I ever met. She speaks four languages fluently [and] essentially runs the show now.” The two share two children, and Sells also has two sons from a previous marriage. The Right Pace for the Right Time Although Charles and Lena run PIP Group together today, Sells started out with another partner, Don Fullman. “I had the trust of my existing clients, but with most investors having a median age over 50, not many potential clients are willing to listen to a 26-year-old kid just getting started. So, I finally decided I needed a figurehead to be the face of the business—somebody older, more experienced with life to be the front man,” said Sells. Although Fullman retired from the company years ago, Sells never forgets one of his old partner’s favorite axioms. It has gotten the company through tough markets, competitive markets, and volatile ones by helping company’s leadership stay focused on what matters: getting good deals done for clients. “Don would say, ‘You’re trying to do too much, too fast,’” Sells said. “I was a young self-starter, and I wanted to do everything. I wanted to be in all the states, be invested in commercial and multifamily, you name it and I wanted to do it.” Fullman’s advice kept the new CEO focused when PIP Group had one of its biggest growth surges in the history of the company in 2009. “Business tripled nearly overnight. It probably would have killed a less-prepared company,” Sells said. Fortunately, PIP Group stayed focused on the end goal, going above and beyond for clients. “Whatever responsibility we have to our clients, we try to go about 10 steps further,” Sells explained. “We want to always do what is right, not just what is required.” In 2009, that meant leveling with clients about what the company could (and could not) do for them in one of the most opportunity-laden markets the country had seen in years. As the housing crash sent home prices spiraling downward, many of PIP Group’s clients were eager to dive into new markets and try out new acquisition strategies. “We were honest. We told them to avoid pie-in-the-sky dreams and provided reliable, trustworthy information about how we were investing and what kinds of returns we were seeing,” Sells said. The result was that the company experienced exponential growth and did not fall into the quagmire of customer-service meltdowns that plagued many investment firms during the early part of that decade. Of course, not every client was able to hold steady during the early 2010s. Thanks to these determined individuals who refused to look at hard data and preferred quicksilver action that sometimes failed to pay off, Sells also learned the importance of not just having hard data to support a purchase but also of being able to communicate that data to others and put his own skin (or Lena’s) in the game when necessary. “I have seen literally thousands of incredible opportunities slip by because an investor wants to ‘follow their gut’ rather than take advantage of our years of experience investing in real estate,” Sells said. “The biggest profits are nearly always going to be in the average-looking properties rather than the ones that look like ‘home runs.’ But you have to be able to communicate that or your client may get caught up in the excitement and completely disregard your experience and knowledge.” PIP Group communicates with investors about ongoing projects and potential deals using simple, straightforward methodology that helps clients measure risk and maintain realistic expectations. Sometimes, those expectations need to be tempered. Other times, both Sells may believe investor expectations are falling short of where they should be. Charles Sells recalled a time in 2019 when Lena elected to build a deck that had been quoted by a local professional as being a $20,000 job. Lena felt the timeframe (three weeks) and the cost were both too high. She was determined to prove her expectations for the budget and timeline of the project were closer than the contractor’s. Lena dug the postholes and laid the deck-boards in four days, proving the inefficiency of the service provider the client had planned on using. “PIP’s lead executives are not afraid to get their hands dirty and make sure the job is done right,” Sells explained proudly. Offering a Hand Up to Others Sells has come a long way from his beginnings with $4,000 for legal paperwork and $22,000 in

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Alternative Strategies: Off-Market Properties are the Hidden Gems for Investors

Options Within the Single-Family Industry by Rick Sharga For those not interested in splurging on Bitcoin or fighting with hedge funds over GameStop shares, there are no shortage of alternative investment opportunities in real estate. Typical real estate transactions involve working with a real estate agent, finding a property listed for sale on the local multiple listing service (MLS), and competing with other investors and traditional homebuyers to purchase the property, either for the purpose of renting it or re-selling it at a profit. Often someone becomes an “accidental investor,” by buying a new home and deciding to rent out their current property; or buying a vacation property and renting it out to other vacationers when they’re not using it themselves. But for more experienced—or at least more adventurous investors, the hidden gems are often off-market properties, which are not listed on an MLS. Finding these properties requires more homework and using specialized resources; sometimes requires non-traditional financing; and these properties often take longer to transact on. But these off-market properties also provide the opportunity for greater financial return on investment (ROI). Virtually any type of real estate investor can benefit from off-market properties, which typically have fewer potential buyers competing to purchase the home (and bidding up the sale price). Lower sales prices are critically important for fix-and-flip investors, whose ROI depends on buying at the best price, minimizing repair costs and time, and selling at market pricing. Wholesale investors have ready buyers – both fix-and-flip and buy-and-hold investors – but are lacking inventory in today’s MLS market, so finding off-market properties is critical. And investors looking for rental properties have the same issues—too little inventory, and purchase prices that are too high. So where can investors find these hidden gems? Let’s take a look at a number of possibilities. Hidden Gems: The Distressed Property Ecosystem In spite of the foreclosure moratoria in place today from the Federal Government (along with some state and local government actions), there are still foreclosure properties available for investors to purchase. And when the moratoria and the CARES Act mortgage forbearance program have expired, it’s very likely that there will be a surge of defaults. Historically, many of these properties have been repossessed by the lenders (bank-owned, or REO properties), and subsequently listed by real estate agents for sale. That’s unlikely to happen in this cycle—there’s more demand than supply of homes for sale, and homeowners have a record amount of equity. Even with a significant increase in default activity, it’s likely that many of these properties will be sold before the foreclosure auction. If that scenario plays out, it means investors need to focus most of their efforts on properties in the earliest stages of foreclosure (the Lis Pendens filing in judicial foreclosure states and Notice of Default in non-judicial states). During this pre-foreclosure phase, the homeowner has a predetermined amount of time to try to cure their default; if they can’t do this, the property is scheduled to be auctioned off. But it’s during this period of time when investors need to reach out to these financially-distressed homeowners and attempt to negotiate a discounted purchase. Given the rapid price appreciation of homes today, a savvy investor should be able to work out a deal that pays off the debt to the lender, gives the homeowner cash to get a fresh start, and still represents a lower-than-market purchase price. Default notices are available in the public record and can be found in the County Recorder’s Office; published in legal journals and local newspapers; or found online in subscription sites like RealtyTrac. When reaching out to distressed homeowners, there may also be a chance to execute a short sale—a sale where the purchase price is below the amount owed on the mortgage. This generally only happens if the homeowner can prove financial hardship to the lender, and local market conditions suggest that the lender would be better off taking a lower amount on the sale than executing a sometimes-expensive foreclosure. Investors should consider the purchase price compared to the potential resale price of the home, or the potential cashflow generated as a rental property to determine whether or not a short sale makes sense. Foreclosure Auctions Not all properties will sell prior to the foreclosure auction. Some are vacant and abandoned, leaving no one to negotiate with. Other times homeowners may be in denial and wait too long to attempt to avoid a foreclosure. For whatever reason, foreclosure auctions also represent an opportunity to find off-market deals. Each state has slightly different rules regarding these auctions, but generally they’re live events, often held at the county courthouse or an adjacent facility, and executed by either the sheriff in judicial states, or a trustee in non-judicial states. The properties at these auctions must be purchased with cash or a cashier’s check (sometimes 100% on the day of the auction, sometimes 10-20% on the day of the auction with the remainder due in a few days or weeks). Many of these properties are marketed on online auction websites like these (in alphabetical order): Auction.com, Hubzu, RealtyBid, ServiceLink Auctions, Williams & Williams, and Xome. Investors should keep in mind that these auction properties often represent the highest ROI of all foreclosure properties, but also come with the most risk, since they’re sold as/is, without the benefit of an internal inspection. There are also sometimes tax or mechanics liens levied against the property, so it’s important to get a title report, and do whatever diligence is possible to mitigate the risk. Real Estate Owned Bank-owned homes (otherwise known as REO—real estate owned) probably will not be as plentiful this cycle as they were during the Great Recession for the reasons mentioned above, but are worth researching since they often offer relatively good ROI potential. Some of these properties are sold at deep discounts, but at various levels of disrepair, so inspections and accurate repair estimates are critically important. Check with local real estate agents to find

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Home Price Increases in Opportunity Zone Redevelopment Areas Keeping Pace with Nationwide Gains

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Median Values Jump At Least 10 Percent in Almost Two-Thirds of Zones ATTOM Data Solutions, curator of the nation’s premier property database, released its fourth-quarter 2020 special report analyzing qualified low-income Opportunity Zones established by Congress in the Tax Cuts and Jobs act of 2017. In this report, ATTOM looked at 3,588 zones around the United States with sufficient sales data to analyze, meaning they had at least five home sales in the fourth quarter of 2020. The report found that median home prices increased from the fourth quarter of 2019 to the fourth quarter of 2020 in 77 percent of Opportunity Zones with sufficient data and rose by more than 10 percent in nearly two-thirds of them. Those percentages were roughly the same as in areas of the U.S. outside of Opportunity Zones. With prices remaining well below average in most Opportunity Zones, about 38 percent of the zones with enough data to analyze still had median prices of less than $150,000 in the fourth quarter of 2020. However, that was down from 46 percent a year earlier as prices inside some of the nation’s poorest communities rolled ahead with broader market, defying troubles flowing from the 2020 Coronavirus pandemic that slowed or idled significant sectors of the U.S. economy. The pandemic’s impact generally has hit hardest in lower-income communities that comprise most of the zones targeted for tax breaks designed to spur economic redevelopment. Housing markets inside Opportunity Zones continued to benefit from the nation’s nine-year price boom. Opportunity Zones are defined in the Tax Act legislation as census tracts in or alongside low-income neighborhoods that met various criteria for redevelopment in all 50 states, the District of Columbia and U.S. territories. Census tracts, as defined by the U.S. Census Bureau, cover areas with 1,200 to 8,000 residents, with an average of about 4,000 people. “The country’s long run of home-price increases continues to leave no part of the housing market untouched, boosting fortunes from the wealthiest to the poorest parts of the United States. The latest evidence is the fourth-quarter 2020 data showing prices going up in Opportunity Zone neighborhoods at around the same rate, and sometimes more, than in more well-off communities,” said Todd Teta, chief product officer with ATTOM Data Solutions. “No doubt, prices remain substantially lower in Opportunity Zones, but the fact that they often rose by double-digit percentages in Q4 is significant. Not only does it show market strength, but it also suggests that many distressed communities are ripe for the redevelopment that the Opportunity Zone tax breaks are designed to promote.” High-level findings from the report Median prices of single-family homes and condos rose from the fourth quarter of 2019 to the fourth quarter of 2020 in 77 percent of Opportunity Zones with sufficient data to analyze and increased in 58 percent of the zones from the third to the fourth quarters of 2020. By comparison, median prices rose annually in 79 percent of census tracts outside of Opportunity Zones and quarterly in 58 percent of them. (Of the 3,588 Opportunity Zones included in the report, 3,183 had enough data to generate usable median prices in the fourth quarters of both 2019 and 2020; 3,179 had enough data to make comparisons between the third and fourth quarters of 2020). Measured year over year, median home prices rose more than 10 percent in the fourth quarter of 2020 in 1,945 (61 percent) of Opportunity Zones with sufficient data to analyze. That price increase occurred in 56 percent of other census tracts throughout the country with sufficient data. A wider gap emerged when looking at areas where prices rose at least 25 percent from the fourth quarter of 2019 to the fourth quarter of 2020. Measured year over year, median home prices rose by that level in 1,098 (34 percent) of Opportunity Zones and 24 percent of census tracts elsewhere in the country. States with the largest percentage of zones with median prices that rose, year over year, during the fourth quarter of 2020 included Utah (median prices up, year over year, in 89 percent of zones), Oregon (86 percent), Washington (85 percent), Arizona (85 percent) and Connecticut (84 percent). Of all 3,588 zones in the report, 1,356 (38 percent) had a median price in the fourth quarter of 2020 that was less than $150,000 and 598 (17 percent) had medians ranging from $150,000 to $199,999. The total percentage of zones with typical values below $200,000 was down from 64 percent in the fourth quarter of 2019. Median values in the fourth quarter of 2020 ranged from $200,000 to $299,999 in 837 Opportunity Zones (23 percent) while they were at least $300,000 in 797 (22 percent). The Midwest continued to have the highest portion of Opportunity Zone tracts with a median home price of less than $150,000 (59 percent), followed by the South (49 percent), the Northeast (40 percent) and the West (6 percent). Median household incomes in 89 percent of Opportunity Zones were less than the medians in the counties where they were located. Median incomes were less than three-quarters of county level figures in 59 percent of zones and were less than half in 16 percent. 

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Too Much Innovation Can Get You in Trouble

Don’t Get Too Creative with Diversification in 2021 by Bryan Ellis There is a word you should probably get ready to hear a lot in 2021. No, it is not “unprecedented”. That was last year’s word. This year’s word is going to be different. It is already incredibly popular. In fact, some of the world’s best-loved “experts” in investing use this word all the time already. It is a word you will probably find quite familiar: Diversification. It is hard to imagine we might even need to describe the concept of diversification since it has been aggressively shoved down our throats by Wall Street for decades. In fact, we have heard it so many times, many investors accept the need for “portfolio diversification” as gospel truth without analysis or dissent. No matter how good a concept or idea may be, blind acceptance is a problem. In the case of the diversification myth, blind acceptance can be absolutely catastrophic to your long-term returns. So, the concept of diversification is simple: “Don’t put all your eggs in one basket”. This is also something we have all heard time and again, but do not let that tempt you away from analyzing this concept further. There is a grain of truth to the idea that you should not “put all your eggs in one basket” or rely on a single investment to make or break your future financial situation. It is also true, as many proponents of diversification point out, that investors should “change the allocation of capital to match life circumstances”. Absolutely, you need to adjust your investments so that you have an increasing amount of liquidity as you edge closer and closer to retirement. However, this is where the truth of the myth ends, and the “myth” part of the equation begins. Diversification Is Not an Investment Strategy The concept of diversification is usually used to advocate owning a variety of stocks, bonds, and mutual funds. This is, in reality, hardly diversification at all. This “variety” is really just owning different types of the same asset class. This is not diversification. Here is the important thing to remember: Diversification is a hedging strategy, and hedging is designed to prevent loss, not produce gains. This, in and of itself, is not a bad thing. After all, every self-directed investor, retirement investor, and real estate investor out there wants to first protect their existing capital and then grow it. But diversification (hedging) is not the best route to this goal. Let’s take this analysis a little farther. Ask yourself: Is diversification so popular because it is the best investment strategy? The answer is simple: No. Not at all. Diversification is so popular because it is the most legally prudent strategy for Wall Street and for conventional financial professionals. After all, hedging prevents loss, and loss prevention provides shelter from financial culpability in the event that things in your portfolio go south. If you invest in one stock only and that stock takes a dive, it is easy to blame the individual who advised you to buy that stock. On the other hand, if you own 100 stocks and most or all of them tank, it is easy to argue that was a macro-economic event beyond anyone’s responsibility or control. The biggest problem with diversification as an investment strategy is that it guarantees mediocrity. Will your lower-end results be mediocre? Probably so. That may be acceptable when everyone else is experiencing massive financial distress. Will your upper-end results be mediocre? Probably so. You must ask yourself if you are willing to accept that cap on your returns and potential. Don’t Just Take It From Me Interestingly enough, not everybody accepts diversification as an unassailable strategy. I do not. And, in fact, the most successful investor of all time, Warren Buffett, does not either. He famously observed, “Diversification is protection against ignorance. It makes little sense if you know what you’re doing.” Buffett has really lived by that strategy, too. He has tended away from buying pieces of companies, preferring to buy entire companies. Diversification is not a hallmark of Berkshire Hathaway. The question you must ask yourself is, “Do you know what you are doing?” If you do, then you must seriously consider taking the time to truly respect your capital, seek out truly excellent value propositions, and identify potential for real value. If you have the knowledge and ability to do this with your investment capital, then your portfolio deserves nothing less. This year will be full of opportunities for real estate investors with knowledge, expertise, and experience. Leverage your experience toward making this year wildly productive instead of merely mediocre.   

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Finding Value in the Intellectual Property Assets of Distressed Companies

Buying Intellectual Property as an Investment Opportunity by Jennifer McLain McLemore Last year’s wave of retail bankruptcies will have a long-lasting impact on the structure of modern shopping centers. However, the businesses that sought bankruptcy protection and the diverse outcomes can be instructive beyond the struggles of retailers. These bankruptcy cases provide examples of investment opportunities that arise when distressed companies seek liquidity by selling some or all of their assets, including their intellectual property. The intellectual property assets that may be sold range from brand names to e-commerce platforms to back-room software and infrastructure. In the next economic cycle non-retail entities may seek bankruptcy protection and will provide a similarly meaningful opportunity for investors seeking intellectual property assets. Intellectual property asset sales are important because this asset class can have overlooked value, which can be missed as distressed liquidations move quickly. For the aware and prepared, such expedited sale processes can be an opportunity and provide an advantage. This article will focus on (i) the investment opportunities that arise when distressed businesses seek to create liquidity through intellectual property asset sales, (ii) the means by which strategic business opportunities can be realized through distressed processes, (iii) the potential risks and rewards present when such assets are sold in a distressed environment, and (iv) the strategies for maximizing opportunities to capture such assets in a distressed sale context. Opportunities Await the Aware and Prepared—Examples of Liquidating Intellectual Property Assets in Bankruptcy Cases Covid-19 disrupted the plans of numerous retail businesses that already were in bankruptcy and forced numerous retail operations into bankruptcy. While some brands ended their operations quickly, liquidating all assets (from intellectual property to clothing hangers), some parent companies of brands chose to restructure debts and emerge from bankruptcy with a stronger balance sheet. Still other retail debtors engaged in strategic sale processes, closing brick and mortar stores for some brands, and selling other brands entirely. In the Stage Stores, Inc. bankruptcy cases, which filed as a result of the Covid-19 shutdowns, the debtors sought a buyer for their 700 department stores while simultaneously trying to wind down operations. The debtors sought to liquidate in-store assets as soon as government shutdowns were lifted, as a buyer for the physical stores did not immediately emerge. After several months of effort, the debtors found a buyer with a name related to one of the debtors’ operating entities. This buyer was willing to pay to take the debtors’ intellectual property. With this acquisition, the Stage Stores’ buyer was able to purchase full, national control of its own brand name. Case No. 20-32564-DRJ, Docket No. 861 (Bankr. S.D. Tex. October 9, 2020). Stein Mart, Inc. filed for bankruptcy protection after most of the Covid-related shutdowns were concluded. Quickly after filing, the debtors announced that all stores were liquidating their inventory and closing. Contemporaneously, the debtors announced the sale of the debtors’ brand name, domain names, private label brands, social media assets and customer data. A subsidiary of Retail Ecommerce Ventures was the stalking horse bidder and ultimately the winning bidder for the debtors’ remaining assets at auction. Case No. 20-2387-JAF, Docket No. 738 (Bankr. M.D. Fla. November 19, 2020). Retail Ecommerce Ventures was able to make similar acquisitions in bankruptcy cases across the country, including, for example, in the cases of Radio Shack, Linens ‘N Things, Modell’s Sporting Goods, and numerous others. In addition to preserving brand recognition, e-commerce presence, and the related intellectual property, in some instances, Retail Ecommerce Ventures even has been able to keep brick and mortar locations open. Opportunities Presented—When and How do Such Asset Sales Arise? While distressed businesses determine the best strategic means to create liquidity, there is immense pressure to make such decisions quickly in a bankruptcy setting. This pressure is created by lenders and compounded by the intense costs of bankruptcy. Further, debtors have just 210 days to decide which leases to keep and which to sell or reject. Yet, in order to satisfy the other requirements of the Bankruptcy Code, a proper sale process must include real marketing of the assets and must provide enough notice of such sale(s) for potentially interested parties to undertake proper due diligence. Further, the sale process must not be so quick as to frustrate potentially interested bidders from participating. Debtors and lenders will always prefer to pursue a sale with a stalking horse bidder, which party will set a floor-price for the assets. Thereafter, an auction is a preferred method to set the ultimate value of the assets, because it is hoped that an auction will involve a competitive process between at least two interested purchasers. Courts have come to accept auction results as the fairest way to realize value in a distressed context. Similarly, even if no other bidders assert an interest in a debtor’s assets, a stalking horse bidder buying the assets without an auction process is also perceived to be a fair outcome for the creditors and other parties with an interest in a debtor’s estate, so long as the pre-auction marketing process was robust. The Stage Stores and Stein Mart cases are just two of many possible examples that make clear that an interested purchaser needs to be attentive to case developments early on, or even in advance of a filing, in order to capture desirable intellectual property assets. Risk/Reward Analysis for Buyers to Consider Distressed retail cases show that an established brand name alone can be a meaningful asset. Similarly, a distressed company’s established e-commerce presence has value. An integrated and vetted infrastructure of functional business software can be a separate, strategic acquisition. When these assets come pre-assembled, as in the Stein Mart case, they present a real opportunity for a prepared purchaser. Such assets may have alternative value to the right purchaser. Beyond the example presented by the Stage Stores purchaser, that sought rights to use a brand name nationally, another type of buyer may be looking to eliminate a struggling competitor, or another buyer may seek to keep a

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