U.S. commercial property workouts a slow exercise

* Workouts likely to be slow going

* US commercial property prices off 42 pct from Oct 07 peak

By Ilaina Jonas

NEW YORK, April 19 (Reuters) - Working through the mess of spoiled U.S. commercial real estate loans and distressed properties is likely to be slow, some banking and lending veterans said on Monday.

"It's going to be a long, drawn-out process," Brian Stolar, chief executive of Pinnacle Cos LLC said at the Bankers Forum on Distressed Properties & Real Estate Loan Workouts sponsored by the Information Management Network.

Pinnacle is a developer that concentrates on distressed deals, investing for themselves and advising others.

The U.S. commercial real estate market plummeted in 2008, following its sister sector, the U.S. housing market. According to the most recent indications gauged by Moody's/REAL All Property Type Index, February prices were off 41.8 percent from their October 2007 peak, 24.8 percent from a year earlier and fell 2.6 percent after two months of gains.

The number of sales of sizable U.S. commercial real estate was 707 in the first quarter 2010 compared with the historical norm of 964 but far off from the 1,745 during the fourth quarter of 2006, according to real estate information and analytics firm the CoStar Group. The first quarter is typically the weakest in the year.

"There's no question that the banks are beginning to sell their nonperforming assets and distressed loans, but it's not at a meaningful number and not at a velocity that's going to change anything," said John Cuticelli Jr., CEO of real estate investor and restructuring advisors Racebrook Capital.

During the commercial real estate recession in the late 1980s and early 1990s the government forced financial institutions to sell nonperforming loans and distressed properties. That drove many banks and savings and loans out of business and enriched the new buyers, such as Sam Zell, when the market rebounded. Today's lenders do not want to be the victims of this cycle, forced to sell before the market turns up.

"I think there is a longer term view that last time a lot of individuals made a lot of money," said Douglas Wilson, chairman and CEO of workout specialists Douglas Wilson Cos.

OWNERS NEED NOT SELL

Meanwhile, owners of distressed properties see no need to sell because their lenders are not threatening them with foreclosures because U.S. regulators have made it easier for banks to avoid write-downs and losses by enabling them more easily to classify delinquent loans as performing.

And special servicers, who oversee troubled loans that have been securitized into commercial mortgage-backed securities, are now able to begin to work out loans before borrowers are in or about to default.

Furthermore, in the current downturn the financial structures of loans, even bank loans, are more complicated than they were in the last cycle where one bank or lender often held the entire loan.

Various banks, hedge funds and other types of lenders have different goals and strategies, and that has bogged down workouts of troubled loans.

"It's a problem this cycle," Wilson said.

(Reporting by Ilaina Jonas)