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Commercial property owners:  What to do when you get punched in the face!


Commercial property owners: What to do when you get punched in the face!

By: Chris Sadler, President of Allegiancy

October 22, 2014

“Everyone has a plan until they get punched in the face.” – Mike Tyson

The self-help folks tell us to visualize being successful. But they don’t talk as much about performing the dispassionate analysis necessary to reassess and overcome when we all take the inevitable hit.

I’m in the business of managing commercial real estate assets for owners, and dispassionate analysis and advanced analytics are our best weapons.

Recently, I was talking with a group of investors about their commercial office investment. They explained that a single tenant occupies 100 percent of their property. This tenant’s lease expires at about the same time as the mortgage matures, and the tenant has indicated that they will likely move out at lease expiration. The owners are in shock: they in effect have been punched in the face.

It is difficult to recognize a hit, accept it, and react to the new reality effectively and quickly.

Rather than facing reality, these owners are completely focused on what the value of their asset could be if all works as they hope it will. After all, the market is improving, they reason.

What they need to do — and what Allegiancy would do as their asset manager — is 1) accept the new reality, and not waste time wishing things were different; 2) assess options, given the new reality; and 3) take action to address the situation head-on.

While the tenant has indicated that they will likely leave, their lease does not require them to officially make that decision until almost lease-end. In order to sell or refinance the asset, the owners need certainty. They need to establish a program to re-lease the space and make demonstrable progress, or they will not have a chance in dealing with their lender. If the owners allow the tenant to drive the boat, the property will face foreclosure. On the other hand, proactive, aggressive actions could save this asset.

By focusing on what might be – believing that the hit to the face could be an illusion – the owners are missing reality and the chance to reassess and take the actions that could mean the difference between victory or defeat.

The value of an effective asset manager is the ability to help you, as a property owner, make clear-eyed decisions, so that you can win when major adjustments are required in the middle of the fight. After all, many of these can turn into to the fight of your financial life.

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