Saving Troubled Assets
Funders continue to be intently focusing upon existing loan books and whether or not debt is being sufficiently serviced. Headlines of huge percentage falls in capital value up to mid 2009, and of the subsequent rebound in the commercial property market, do not give sufficient insight into the characteristics of a particular property asset. It is critical to understand how it might compete within its own specific sector or the wider marketplace. An appreciation of where the present value really lies in a proper market context is fundamental. This provides a starting point for modeling scenarios and devising an appropriate medium term strategy.
Whilst the past year has witnessed a weight of money returning to commercial property investment, the volume of transactional activity remains below annual averages and investors are selective. Valuers need to place weight upon available deal information together with market sentiment. First hand knowledge is required of opportunities that are currently being appraised, discussions which may be bubbling under the surface and of deals which have occurred off-market or which have failed to conclude due to an imbalance of the aspirations of buyers and sellers.
Any valuation is a snapshot at a point in time. As the market witnessed swift correction and subsequent improvement, the shelf life of valuations has reduced. Most parties hold property assets as a means of risk diversification within a portfolio of various asset classes and will have acquired properties with a medium or longer term strategy. Funders involved in acquisition finance or loan restructuring take a medium term exposure to the performance of commercial property, development opportunities and land banks. The debate now centres upon forming an appropriate strategy and timeframe moving forward. It is essential to address how arrangements can be structured.Action Plan for Troubled Assets
- The starting point is to instruct an accurate valuation of the property and professional advice on means of protecting or enhancing this.
- Concentrate on maintaining cashflow through regular dialogue with tenants, exploring means of restructuring or extending leases, maximising rents and minimising rental voids.
- Fully explore alternative uses or planning angles.
- Identify areas where you could reduce costs such as capitalising upon rating relief.
- If you need to re-let or sell, employ an agent who is active in your local area and will market in an efficient and effective manner to an identified target market.
- Make sure your property is managed and maintained so that it presents well to potential occupiers or purchasers.
- Detailed due diligence can lead to a range of potential solutions including;
- identifying means to assist parties through this current point in the market cycle,
- locating sources of fresh capital injection,
- joint venture arrangements,
- disposal.
Extensive modeling of potential future scenarios forms part of strategic decision-making for both property owner and funder alike. Property expertise and a market knowledge that are second to none are key in navigating matters forward.
For more information on asset recovery support offered by Ryden please contact Brian Allen on 0131 473 3310 or at brian.allen@ryden.co.uk
