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Stabilizing distressed properties possible.

In this market, just about every major real estate investor has had to deal with distressed properties, either from one side of the table or the other. Declining real estate values and high debt levels have made foreclosure or some other form of "take-back" all too common. And in a highly competitive market, properties with changing ownership have one more strike against them in attracting high-quality, credit-worthy tenants.

Fortunately, there are ways to stabilize properties when ownership is in transition. First of all, professional property management must be brought in to take over the operation of the building, along with an experienced building manager who must quickly become familiar with every aspect of the building's operations, from leases through maintenance. Most importantly, he or she must be able to work with the tenants to ensure that the building's tenancy remains stable and satisfied that the on-site management team is competent and attentive to their needs.

Naturally, tenants may be alarmed at the building's new status, especially if foreclosure is involved. They should be assured immediately, if possible, that a change in ownership will not affect the quality of service in the building and that tenants' operations will not be interrupted. As the new owner's representative, the manager should meet with every tenant, either individually or in a group, to make sure their concerns are addressed.

Ownership also has to provide assurance that they will stand by the commitments or concessions of the previous owner. Alternatively, tenants that have not met their obligations should be called upon to clear up arrears or vacate their space. Properties in distress must be assured of dependable cashflow.

The property's leasing efforts should be given careful scrutiny. The leasing team must be aggressive, knowledgeable and confident of the property's stability so that they can promote the property effectively to the business and brokerage communities.

Properties with unstable ownership may have deferred the maintenance necessary to stay competitive, compounding their marketing problems. A new owner has to evaluate the level of the building's deferred maintenance problems and be prepared to make the investments necessary to correct them.

Nothing is as unattractive to tenants - both existing tenants and prospects - as a property that is not cared for structurally and cosmetically.

Existing service contracts should be reviewed thoroughly in order to evaluate performance and costs against the property's current occupancy and needs. An experienced and knowledgeable property manager can recommend reasonable modifications to these contracts, or negotiate some pricing reductions during the property's transition to stability and profitability.
COPYRIGHT 1992 Hagedorn Publication
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Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Perry, James S.
Publication:Real Estate Weekly
Date:Oct 28, 1992
Words:420
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