When could “distress” be considered a good thing? When you’re a potential commercial property buyer and you’re presented with opportunities to buy “distressed” commercial properties at significant discounts.
The road to today’s commercial real estate foreclosures.
Commercial real estate valuations have been deeply impacted since the credit crunch of 2008. In spite of this, through 2010 we were surprised to see relatively few commercial properties going into foreclosure in the Denver area. This was partially the effect of “Extend and Pretend” – banks modifying commercial real estate loans by delaying maturity dates or providing below-market interest rates to keep even substandard loans on the books as performing.
Commercial property owners continue to face significant challenges while the economy remains sluggish, including:
submarkets, with tenants driving hard deals.
outstanding debt – and many financial institutions cannot, or will not, refinance under these
conditions.
The inevitable result – somewhat delayed in 2008 through 2010 – is that banks are forcing more commercial property owners into foreclosure. In addition, stronger banks are off-loading distressed assets they acquired from failed financial institutions, often with the assistance of the FDIC.
How do I find the best opportunities?
Some distressed asset opportunities are listed for sale on typical commercial real estate databases, and so are widely advertised in the brokerage community. The best opportunities, however, are often for assets that are moving towards or through the foreclosure process and are not yet advertised for sale. Through a combination of careful property research and having contacts in-the-know, these opportunities can be developed before they attract attention from potential investors.
Each distressed asset situation is unique.
Purchasing such properties is often more complex than a typical commercial sale transaction, and these transactions often move very quickly. Completing due diligence in the short time frames presented is challenging. With careful financial analysis, however, the potential for gain vs. risk can be evaluated. These “distressed asset” situations can create incredible opportunities for well capitalized buyers to purchase commercial properties at very significant discounts.
A recent success story.
Guidance recently represented a commercial buyer to purchase a 52,000 SF Class C+ office building for approximately $45.00/SF. This property had been fully occupied less than one year before, but when the full-building tenant vacated and the owner could not re-lease the building, the property was eventually forced into foreclosure.
Guidance represented the buyer to purchase this property in a “short sale transaction” with the lender taking a significant loss. While this property will require some investment to update building systems, after making these investments the property will be fully functional for a final cost far less than either the replacement cost or the cost of this same asset on the open market just a few years ago.
How to capitalize on opportunities.
The best opportunities are typically available to those buyers who can pay cash and can move quickly. Some opportunities may be available on select properties for buyers using financing or even a “bridge buyer” that can step in to purchase the asset quickly and hold it for the final buyer after financing can be secured.
Guidance Corporate Realty Advisors has developed an in-depth methodology to track and analyze the value of “distressed” commercial real estate purchases for a variety of scenarios – owner/user or investment.
Call us to brainstorm ideas if this might be the right time to consider a building purchase for your own use or investment.
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The Guidance Advantage
Guidance Corporate Realty Advisors provides corporate tenant / buyer representation services to corporate real estate users in the Denver metropolitan area including Boulder, Colorado. Guidance also provides these services in all major U. S. markets, as well as markets in Canada, Asia, South and Central America, and Europe.
