Restructuring Troubled Property

In any market, good or bad, there are always problem properties. Most are only troubled or problem properties because of the current ownership. Some may be neglected only because the present owner has failed to do fairly simple things that can solve the problems. Buying property and solving problems is a profit-making business.

Have you seen: An empty office building. A remodeled apartment house or hotel that has an excessively high level of vacancy. A large tract of undeveloped land that no developer has become serious about wanting to develop. These are examples of troubled property–property that is a definite financial burden to continue to hold but which also is unattractive property to some prospective buyers. Unattractive, that is, until very recently.

The timing now seems right for investors to obtain troubled property. The pressure on owners and lenders with troubled property to get out from under the ongoing burden is also high. The result is that syndicates have been formed to seek out and buy up troubled properties.

High Risks Not For Everyone

Knowledgeable property developers and managers (especially those familiar with empty or near-empty office, hotel, and apartment buildings) caution that buying troubled property requires taking a very high risk. The financial returns are uncertain and may be a long time in coming, if they come at all. This type of investment is not for everyone; it’s for those who can afford high risk situations.

The profits can come from any one or a combination of circumstances.

  • A market turnaround caused by a boom in the local and/or national economy.
  • An improved system for promoting and operating the property. Some syndicates are being formed solely to manage the troubled property with an option to buy when and if it hits a specified profit level.
  • Purchase of the property at a bargain price, often combined with imaginative and untraditional financing techniques. Some lenders are asked to share the finan­cial risks by accepting a low initial interest rate in return for a big share of the profits later on. Sometimes the seller of the troubled property is asked to retain a finan­cial stake in the property and to help turn it around. The seller’s experience and involvement in the project from the start can be valuable.
  • Including the troubled property in a larger develop­ment plan. An office building that sits empty might become part of a new industrial park with hotels, conference facilities, and residential apartments, all of which are successful.

Take another look at troubled properties in your area. With fresh new ideas and a re-structuring of the mortgages, the troubles may go away, leaving a profitable investment for you.

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