Distressed Asset Essentials Part 2: Improving Value and Making Your Exit

By Westcott Toole, Senior Regional Manager, Property Management

As a lender, it can be burdensome to assume control of distressed commercial real estate assets that go into foreclosure. Many of these assets come with significant deferred maintenance, challenging tenants and financial and operational deficiencies that are now suddenly your responsibility.

However, when working with an experienced, full-service property management firm to quarterback the process, inheriting a distressed asset can become a great value-add opportunity. Below are 10 steps the Franklin Street team can help you implement to stabilize the distressed properties in your portfolio, improve their value and make your exit for a profit:

1. Identify and assess financial and operational pain points. It’s important to understand any issues you are inheriting from day one.
2. Determine your goals for the property and develop a plan of action. Whether you are looking to hold on to the asset as part of a value-add play or make your exit as quickly as possible, our team will help you define and execute the right strategy.
3. Perform due diligence to avoid code violations and fines. Contact your local code enforcement department to inform them you are working to solve any violations as soon as possible. Skipping this step could allow fines to stack up.   
4. Review all existing leases. Make sure any current tenants are paying on time and being charged properly for Common Area Maintenance.  
5. Review vendors for cost-efficiency. With an extensive network for trusted vendors, Franklin Street can help you find reliable vendors for the right price. 
6. Make any necessary repairs. Any deferred maintenance that poses a safety risk should be addressed immediately upon takeover to preserve value and avoid liability.
7. Prepare vacant spaces for lease. Our property management team will work with you to make sure all availabilities are ready for occupancy, converting vacant spaces to white boxes when budgets and schedules allow.
8. Review your insurance policy. As a full-service firm, Franklin Street’s property management team works closely with our commercial insurance to help owners secure the right coverage for their specific needs.
9. Market the property for lease. Working with an experienced leasing agent to improve the property’s occupancy before listing it for sale will help drive value. Our property management team works hand-in-hand with Franklin Street’s leasing teams to facilitate new leases and renewals.
10. Make your exit. Once the property is in good condition and all value-add strategies have been implemented, it’s time to market the asset for sale. Franklin Street’s investment sales experts represent owners of retail, office, multifamily, industrial and other commercial assets in dispositions throughout the Southeast and beyond.

Dealing with distressed assets doesn’t have to be complicated. With our integrated platform of property management, leasing, capital markets, insurance, accounting and valuation services, our team is fully equipped to assist owners through every stage of a distressed property’s life cycle. Learn more here.

And in case you missed it, read part 1 of this series, “10 Steps Lenders Should Take When Inheriting a Distressed Commercial Real Estate Asset” here.