Being the owner of any property is a job in and of itself, but owning a property experiencing recent distress is a unique situation with its own set of challenges.
First of all – what constitutes a distressed property? This type of property is one in which the owner can no longer keep up with the obligations, financially, of property ownership. Be it by tenant default(s), high vacancy, lender calling the loan, unable to meet debt service, partnership disputes, inability to fund CapEx requirements, etc – property experiencing any of these unfortunate situations will turn it into a “distressed” property.
Here are some things to keep in mind if you are the owner of one such distressed property.
1) Work with the best local leasing talent available to you
This doesn’t necessarily mean the most expensive, or even the most widely recommended!
When we say “best”, we mean the talent that is hungry and willing to put in whatever it takes to promote your asset and put the effort into increasing your occupancy- they are ready to get out there and pound the pavement to get results.
2) Keep lines of communication open
Be sure to maintain a good working relationship (and open lines of communication) with your lender. You will need as much good grace from them as you can get during tough times! Try to work out a mutually beneficial modification to your loan if needed, and offer additional security to them if necessary.
3) Don’t be afraid to raise additional capital for the asset
If needed, look to a strong operating partner to raise additional capital for your asset. However, make sure they aren’t just bringing in the additional equity you need, but that they also have the operational knowledge and key relationships you’ll need to help bolster the asset. Raising capital either for preferred equity or common equity will help provide the liquidity the asset requires to make it through an economic downturn and/or improve the asset in order to stabilize it and create value for a successful exit.
4) Selling might be your best option
Ultimately, you may need to sell, especially if the weight has become too great for you, or if your lender isn’t really looking to play ball. If this is your case, be sure to call groups with a strong reputation in your local market. This will help you work out a favorable deal in the sale.
Contact us to learn more about distressed properties and the opportunities available in our area.