August 15, 2010
Mike Ziecik and his team have been engaged by a local real estate investor to restructure a Michigan industrial real estate loan portfolio held by several banks.
The loan portfolio was first evaluated to determine a strategy of “lease up” and stabilize. With this strategy scheduled out over the next thirty-six months, the objective is to address the lender’s concern and ultimate exit strategy.
Different lenders took different approaches and as a result, our strategy differed:
Large tenant vacancies: If the investment real estate has large units vacant (over 15,000 sq. ft.), the market will take longer to stabilize. The current lease activity is heavily weighted with 1,000 sq. ft. to 5,000 sq. ft. tenants. The larger tenants need more economic turnaround and more contracts to overcome the cost and risk of moving to a lower cost facility or more efficient facility.
Solution: Negotiate with bank to hand over deed with minimal cost and to remove the personal guarantee.
Small tenant vacancies #1: Aggressively market facility to fill up vacancies and continue to pay P&I, while looking for a lender to take out current lender. This strategy was satisfactory, but bank, with pressure from FDIC, was open to a loan purchase. We negotiated a twelve month term to purchase the loan at a discount.
Small tenant vacancies #2: Our marketing team leased up this multi-tenant facility, but at lease rates 40-50% less than lease rates obtained prior to 2008. This made the loan unserviceable. We now are negotiating with the bank to restructure the debt and allow debt to be paid from current cash flow.
If you have a loan that is in distress, please call us for experienced advice on restructuring your position.
Tags: Clients, industrial, loan portfolio, real estate
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