If you have been keeping up with the current real estate economy I’m sure you’ve heard about all the opportunities in workouts. But, what exactly are workouts? How do they relate to the current global recession? And how can developers benefit from these workouts?
Workouts are simply a compromise between a motivated seller and a developer. For instance, say an institution purchased an industrial warehouse to use as a distribution hub. This institution probably paid a high price for this asset because they did not have any investment risk in terms of vacancy and knew the various expenditures needed to operate and maintain the facility. This user, however, chose to consolidate their facilities to another region of the country and as a result is left with this excess real estate that needs to be disposed of. In a global recession, such as the one we are currently facing, the user will get no where near the asking price they expected and thus will take a huge write-down on their books. Certain developers, however, can ease this pain by working with these users to come to a more economically friendly solution. For example, a developer interested in buying such a building pharm order discount may conclude that it’s too great a risk due to the lack of credited tenants and the amount of equity needed to complete the transaction but may agree to take a fee (consultant of sorts) and aid the user in making various capital improvements (with user’s money) and releasing the space to make it a more attractive asset to sell. This process reduces the risk for the developer and is economically beneficial to both parties.
Cheers,
John
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