Brokerage - Commentary Special Assets

Managing Real Estate, Farm Operations and Oil and Gas Properties in Transition is No Task for the Inexperienced By Roger Kummert

Roger Kummert, Commerce Trust Company Real Estate and Special Assets Manager, covers the reasons why having a professional manager for illiquid assets is a valuable commodity in the high stakes world of material resources. Roger’s team handles holdings such as closely held businesses, which can include corporations, limited liability companies, or limited partnerships, as well as

real estate, like commercial properties, farm acreage, timber, precious minerals, or oil and gas assets.

Q . What are special assets, and what makes them special? A. Special assets are typically highly valuable businesses, properties or natural resources that can be difficult to convert directly to more liquid investments, like cash. In fact, I prefer to use the term illiquid assets rather than special assets. Q . What do special asset managers like yourself do for people? A. When called upon, we put professional resources in place to manage all kinds of ongoing enterprises, including family owned businesses, limited partnerships and limited liability corporations. We also have professional asset managers who take care of real estate assets such as farm acreage, residential real estate, office buildings and timber properties as well as mineral assets, including oil and gas. It’s amazing the diversity we get.

Q . When do people ask to engage your services? A. This usually happens when an ongoing enterprise is in some kind of transition, whether that is prompted by a change in ownership, a death in the family, or some other major event that causes a disruption in normal operations. In the case of a closely held firm, for example, an outsider suddenly thrust into an ongoing business may be unfamiliar with operations and not possess the industry knowledge to keep it functional. The same could be said of property maintenance, sales or leasing – it takes some practical experience. It pays off for people to recognize where their management

strengths are – not everyone can be an expert at a particular industry.

Q . How much special assets business does Commerce Trust Company handle? A. In total, we are responsible for about $1 billion in closely held businesses and about $600 million in real estate properties. People tell us they come to Commerce because the professional expertise to profitably manage or dispose of these properties is hard to find under one full-service money management roof. Q . How do most of your clients acquire their special assets? A. Owners acquire special assets in a variety of ways – some build them from the ground floor up while some may simply inherit. If a business owner of any enterprise involving farming, mining, forestry or petroleum exploration retires or suddenly passes away, the burden of operations can sometimes fall on family members who may not be suited or want to carry on in the same way.

That’s often the time we are invited in to help sustain business operations or liquidate.

Q . How have Commerce Trust clients profited from your expertise? A married couple with a large farming operation and a long investment relationship with commerce trust was faced with some tough financial choices recently when the husband suddenly passed away. The wife faced the prospect of having to take over the operation of several thousand acres of farmland worth millions of dollars. She had a deep empathy for the many long-time business partners who had been her husband’s key tenants and she reached out to us for help liquidating these assets. Given our long-standing history with the couple, we were uniquely situated to help. The wife decided to bring us in as agent to assist her in reaching her goals for the property. As not all the interested tenants could immediately raise the funds to purchase the parcels, we also enlisted Farmers National to list for sale and auction portions of the acreage, using their experience to derive the most value for the family while creating fair access

to the pool of potential purchasers. The sheer scope of managing these purchases made it a complex job. In many cases, it’s simply too big a job for a single person or typical bank officer when the stakes are this high. You need an experienced team. Q . Can you give me an example of why this is a tough “do it yourself” pursuit? A. A professional special assets manager skilled in liquidating properties or managing ongoing businesses can have a competitive advantage over newcomers. When mistakes are made by inexperienced agents, huge sums can be squandered. For example, valuation mistakes are more likely to occur when there are many minority interest holders in a property. Recently, a minority owner who thought her property was virtually worthless mistakenly sold her mineral rights at a fraction of what they were worth. We were able to command a significantly higher price for another minority interest owner we represented. As a prepared advocate for our client, we were better able to market his parcel to interested parties. By doing the homework and waiting

just a little longer for the right purchaser, our client profited immensely compared to his neighbor.

Q . Can you give me another example? A. Another recent circumstance included an absentee property owner who had a commercial building for sale for 1 ½ years with no offers. He subsequently retained our services and we discovered the previous broker had let the property deteriorate behind the scenes. The sprinkler system had not been working properly, so many of the bushes in the planting beds had died, rodents had gained access to the building, and a host of other problems not easily detectable to the casual observer prevented the building from being seen in its best light. Our active property management skills enabled us to rectify these problems quickly and we had the property sold in 90 days. Q . How do I know when to engage professional management services? A. There is no one right answer for everyone, but usually individuals who are suddenly thrust into roles or responsibilities for which they have little experience, or

who have family issues, are among the first to call us. If you find yourself in a difficult situation, you can call Commerce at 1-800-292-1601. Follow the prompts to Ext. 1-3213.

The 2017 investment commentary is a special report designed to provide investment information on economic markets for Commerce Brokerage clients. It is intended to provide general information only and reflects the opinions of Commerce Trust Company’s Investment Policy Committee. Commerce Trust Company is a division of Commerce Bank. Commerce Brokerage Services, Inc., member FINRA and SIPC, and an SEC registered investment advisor, is a subsidiary of Commerce Bank. This material is not a recommendation of any particular security, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified attorney, tax advisor or investment professional. The information in this commentary should not be construed as an individual recommendation of any kind. Strategies discussed here in a general manner may not be appropriate for everyone. Diversification does not guarantee a profit or protect against all risk. Past performance is no guarantee of future results, and the opinions and other information in the investment commentary are as of September 28, 2017. Commerce does not provide tax advice or legal advice to customers. Consult a tax specialist regarding tax implications related to any product or specific financial situation. >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9

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