Distressed assets have been a hot topic in the commercial real estate industry for the past few months, especially in the office and retail spaces. Distressed assets in commercial real estate refers to properties or other real estate investments that are facing financial difficulties due to the property owner or investor being unable to make mortgage payments, pay maintenance costs or other related expenses. Selling a distressed asset or giving back the keys are not the only options and may not be the best options.
Selling a distressed asset may not generate enough proceeds to pay down the balance of the loan on the asset. Letting the asset go into special servicing is not the best option either. Giving the keys back and walking away from the asset could potentially lead to other liabilities for the asset owner, including personal recourse and tax liability at the time of loan foreclosure. It is worth it for asset owners to discuss other options with lenders.
There are many alternatives to selling or walking away from distressed assets. Depending on the specific goal of the asset owner or investor, loan modifications, refinancing, leasing or renting, joint ventures, loan workouts, government assistance programs, etc. can all be viable alternatives to selling or walking away from the asset and can sometimes lead to the best outcome for most parties involved.