Wednesday, April 29, 2020
How to Create Liquidity During a Pandemic Through Surplus Real Estate
Source: NRC Realty & Capital Advisors, LLCBy Evan Gladstone & David Levy
The current Covid-19 pandemic crisis has thrown the world into an economic turmoil that hasn’t been witnessed in a generation. This has affected all aspects of business in the United States and elsewhere, ranging from retail to industrial to the service sector. Companies that were performing well just over a month ago have found themselves closed and in dire straits, wondering how to survive. The federal government’s Paycheck Protection Program will provide some short-term relief to smaller companies, and some of the industry bailouts being discussed will aid some of the critical industries in our society.
However, there are a significant number of businesses who can’t make their mortgage, lease or other loan payments. They may consider a bankruptcy filing under Chapter 11, but that may or may not solve their problems. Furthermore, many lenders and landlords are willing to work with borrowers and lessees in the short term to defer payments. More importantly, those same lenders and landlords really don’t want to foreclose borrowers or evict tenants right now (even if they could find a judge who would sanction that), because they don’t have any better idea what to do with the properties if and when they get them back. So, for the most part, everyone seems to be in a relative “holding pattern” at the moment. However, there are some ways in which companies can increase their liquidity even during these difficult times.
Most companies with real estate always have certain assets which are less productive and profitable than others. Although some companies may consider divesting those less productive assets from time to time, there would not seem to be a better time to do that than in the present economic environment. Whether a company elects to utilize the bankruptcy courts or merely sees an opportunity to work with its lenders and landlords to create a “win win” solution for both parties, the sale of non-strategic assets would seem like an idea worthy of serious consideration by all companies with significant real estate assets.
NRC Realty & Capital Advisors, LLC (NRC) has assisted turnaround professionals, attorneys and advisors to many companies both in and out of bankruptcy with surplus real estate assets which could, if sold quickly, be turned into much needed cash to fund their existing business operations. Retail or convenience store chains might have land they banked for new store development or closed store sites that they own in fee. Manufacturers may have unused or outdated and long closed facilities or distribution warehouses, or service companies may have consolidated office space and have unused blocks of space. Millions of dollars could be tied up in properties which are costly to maintain, and with real estate tax and property insurance bills to pay. So how can an advisor help a company unlock these monies and improve its liquidity?
Virtually any retail, commercial or industrial property can be converted into cash through a sale which, if properly run, can take four to six weeks to generate offers to purchase, and then to close in less than an additional 30 days.
NRC has successfully used a proven structured sale process over the past 25 years where properties are widely exposed to a broad section of potential buyers, and if sufficient information is provided to them, they can and will make bids. Information usually includes an ALTA land or as-built survey, an environmental Phase I environmental site assessment and a title policy or commitment. If a building is being sold, buyers will want to tour the inside. Interested buyers order a ‘bid package’ with this due diligence information, which also contains a form of purchase agreement which the buyers sign and tender on a specified date along with an earnest money deposit, usually 10% of their bid price for the property.
If more than one bid is received, NRC runs a final bid round asking the bidders to provide their best and final bid price. Once the seller executes a contract, the closing can be set in accordance with the terms of the contract.