Commercial Real Estate, Capital, Insurance, Leasing & Management

10 Steps Lenders Should Take When Inheriting a Distressed Commercial Real Estate Asset

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By Chad DeFoor, Senior Director – Investment Sales 

When commercial real estate properties go into foreclosure, it is not uncommon for a significant amount of deferred maintenance — not to mention critical Life Safety and Security issues — to accrue. Owners are often simply focused on making their debt service payments, while the asset deteriorates. 

Many times, lenders inherit properties upon foreclosure with severe maintenance and life/safety needs that should be addressed promptly to mitigate ownership risk and protect the asset’s value.  

If a distressed asset is foreclosed upon, be prepared to take the following steps immediately upon takeover: 

  1. Bind property and casualty insurance. This is one of the most important steps to take and it should be done the day of foreclosure. 
  1. Secure the property at takeover. Obtain keys to all units and or office suites, gain access to all common areas, and notify residents / tenants of new ownership. 
  1. Assess all HVAC, electrical, mechanical, and plumbing systems and promptly address any apparent code issues. If any of these systems are failing and cannot be immediately repaired in a timely manner, make plans to relocate the tenant.  
  1. Identify any units with mold and or other conditions potentially detrimental to health. 
  1. Inspect all fire extinguishers, smoke detectors and sprinkler heads and replace any expired/broken fire suppression/fire alarm equipment immediately.  
  1. Replace any broken or cracked windows immediately. For properties in storm-prone areas, consider installing hurricane impact windows throughout to mitigate further damage. 
  1. Repair any trip hazards, loose steps, or missing handrails immediately. 
  1. For properties with pools, ensure perimeter fencing and gates are secure and functioning and that proper safety signage is displayed.  
  1. Identify and address any active water leaks or drainage issues. 
  1. Inspect nighttime lighting systems upon takeover and continue to inspect on a regular basis to mitigate danger. 

Dealing with distressed assets can be a complicated process. Franklin Street’s platform of brokerage, insurance, property management, accounting and valuation services is fully equipped to assist owners every step of the way in mitigating risk and preserving the value of a property. Learn more here.

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